Phase 2 - Real Estate 101 (How to or one big idea)

Podcast - An Inside Look At The Industrial Market

Marcia Cuenca
October 19, 2022
Podcast - An Inside Look At The Industrial Market
Real estate might be a people business. But it's also math and a statistics business. And you have to be able to blend communication, statistics, math, and people skills all in one."

- Andrew Sinclair, CEO & Principal at Midloch Investment Partners

On this episode, we had the pleasure of speaking with Andrew Sinclair, CEO & Principal at Midloch Investment Partners. Andy discusses the current state of the industrial real estate market and ways to improve an industrial property's value.

About Andy Sinclair

Andy is an accomplished real estate investment professional whose experience spans real estate private equity investments and institutional brokerage. He has invested and participated in approximately +/-$2.0 billion in real estate transactions. As CEO of Midloch, Andy is involved in all facets of the business, including working with investors, making investment decisions, and overseeing the company's long-term growth.

About Midloch Investment Partners

Midloch Investment Partners is focused on providing investors access to quality small and middle-market real estate investments with value-add returns. The principal team seeks to create a portfolio diversified by both geographical location and asset class through national relationships, as well as experience investing in multifamily, industrial, office, and commercial assets.


Self Storage - CBRE
Self storage | Industries - JLL

Self Storage | Marcus & Millichap

Andrew Sinclair's Linkedin - Click here
Learn more about Midloch Investment Partners - Click here


Subscribe To Real Estate Investing For Your Future Podcast

Apple Podcasts



Adam Hooper (00:03) Hello and welcome, I’m RealCrowd CEO Adam Hooper, and this is the Real Estate Investing For Your Future podcast. Here we explore the latest in commercial real estate trends, insights, and investment strategies that passive investors can use to build real estate portfolios that last.

Disclaimer (00:21) All opinions expressed by Adam, Tyler and podcast guests are solely their own opinions and do not reflect the opinion of RealCrowd. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions to gain a better understanding of the risks associated with commercial real estate investing. Please consult your advisors.

Adam Hooper (00:43) Our guest is Andrew Sinclair, the CEO at Midloch Investment Partners. In today's conversation, Andrew discusses the current industrial market. What he's seeing with rental rates and how you can add value to an industrial property. We hope you enjoy today's episode with Andrew Sinclair.

Adam Hooper (01:04) Well, Andy this has been a long time coming. We've known each other for quite some time, and we're excited to have you on the show today. So, thank you for carving out some time and talking to us about real estate.

Andy Sinclair (01:18) Thanks for having me, guys. Excited to talk to you a little more about what we see in the marketplace.

Adam Hooper (01:22) Well, before we jump in too much. Why don't you tell us a little bit about what you're up to these days with Midloch and then roll us back to what got you interested or started in the real estate space.

Andy Sinclair (01:34) Absolutely. So, most people know me today, I'm the CEO and one of the principles here at Midloch Investment Partners and overseeing our family of companies and all of our investments throughout the US. But I've really started at the bottom, Adam, when I started in real estate. So, we do, when we do our board meetings, we actually always ask questions of, to get people to get the juices flowing. So, the question for actually last week's board meeting was, what was your first job and what was your first job in real estate?

Andy Sinclair (02:04) So, I definitely started as a bottom. So, I can tell you before I worked in real estate. I worked in fast food in high school. I've started at the very low rungs of mopping floor. And same thing for real estate. I started working off on a leasing team for brokerage. Every city and state call us something different, the brokers. Some people use a little more derogatory term. But I hung up leasing signs. I walked buildings with a tape recorder and just made sure that no matter what, that we were successful leasing or sometimes selling buildings. And so, you get in a ground level appreciation when you're the low man on the totem pole in real estate.

Adam Hooper (02:49) And, from there I guess where we started knowing ones one another, we spent some time working together. Gosh, that was probably what, 12, 13 years ago now, wasn't it?

Andy Sinclair (03:01) Yeah. So, from there, Adam, we did meet out in California actually. And so, we were working, together actually as colleagues at Palmer Capital and for those who might be unfamiliar, California based institutional investment sales, kind of 30 to a hundred million dollar project. Really commercial projects and worked for a great group of people and learned a lot about that job, including how to manage clients. And it's always easy when things are going well on a brokerage side, but you definitely learn as well when things are going poorly, how do you give updates? And a lot of those things today. Now that I'm the CEO of Midloch, I tell my team and I talk about lessons I learned when I was on the brokerage side. And after brokerage I used a lot of those same skill sets. I worked at a group that I know RealCrowd knows really well called MLG Capital. I was their Vice President of Private Equity. Running, their private equity division overseeing their partnerships across not only the Midwest, but also the United States, and took a lot of those lessons from the very bottom as well as in the brokerage side. And how do you make sure you're applying accurate communications, but also incorporating trends of what you're seeing. Real estate might be a people business, but it's also a math and a statistics business, and you got to be able to blend communication, statistics, math, and the people skills all in one.

Adam Hooper (04:19) Yeah. I think communication is so critical, right? Especially as you mentioned. On the brokerage side, right? When you're running a process, communicating the good and the bad kind of prevents some of those surprises down the road. I'm assuming you see a similar dynamic on the operator side, right? Communication and what we see on the marketplace too is managers that are more communicative throughout the process tend to have, certainly enjoy better relationships with their investors, which in the future will result more activity. Right? More capital coming to those deals. How do you guys look at communication when you're certainly in an interesting market cycle, right? And we're going to talk more about industrial space today. Which is by all most measures, been still exceptionally strong. But, what are some of those lessons about communication that maybe you share with your team that you learned along the way?

Andy Sinclair (05:15) Yeah, communication in general is something we harp on a lot here at Midloch and it's an all-encompassing process. It's not just send a client an email and move on. It's communicate what's going on, good and bad news and not forgetting by the way to send them the photos. As much as people want to get the bullet points. Maybe get the financials. Obviously, they're invested in the real estate side, but also, they want to see photos, right? It's one of the most tangible asset classes. They want to be able to touch and feel like they're a part of it. Midloch that also includes doing videos. And so, we are big fans. We actually pay quite a bit of money and some of 'em actually have been up on the RealCrowd website. We actually hire out specialized video shooters, including the racing drones that you see on TV and try to really make these properties come to life.

Andy Sinclair (06:02) And so if you want to see a little more action, feel free to go check out our YouTube channel, at Midloch to see a little bit more of that. But at Midloch we communicate once a month a minimum and we really try twice a month of what's going on at every property. It seems like a small amount, but I will tell you cause I invest with other operators that are not Midloch and communication's really rare. I wish I could tell you that people were on top of it. I worked for a legendary gentleman named Bill Palmer. His belief was every Friday you send an email. Good, bad, or ugly, and I've really taken that lesson hard. I would send clients an email and say, here's the update, here's the plan, here's where we're going. Well, we do the same thing at Midloch, except we just don't go quite as far as doing once a week because the properties just don't change on a weekly basis. So, it's not like we have to worry if the lease rate goes up or down any given day like you might in the stock market with the purchase price of the stock. So, we try to make sure we synthesize those financials, those narratives, those photos, and bring it to life when we do our monthly or bimonthly communication. And if you don't communicate, you're not going to last very long in this business unless you make a lot of money.

Adam Hooper (07:08) Oh, and so why don't you tell us a little bit about then. What you guys are up to with Midloch, how you got started there and what you guys are up to these days.

Andy Sinclair (07:17) Yeah, so Midloch, we're on our second fund as well as our individual side cars.  we've done just about 500 million of transactions since we co-founded Midloch together as a group. And we really started Adam, about one year before Covid hit. So lived through the Covid crisis. And for the bigger groups, they probably skated right through. But I can tell you we were very much in the start of our buying process for our fund one at the time. And so Covid made a little bit extra special time in trying to communicate with clients. It was the first time my career that we actually had client’s default on what's known as capital calls or commitments to invest in a fund. And so, we were supposed to close a deal that ended up on the RealCrowd marketplace called Villa Medici at the time. Close in April of 2020, we finished our due diligence around March 10th, March 9th, right as lockdowns were beginning. And we were getting ready to actually close that deal, close off our side car, and then all hell broke loose. We had clients that were defaulting, never happened to me before, and took a lot of tough calls, talk about communication, both to the seller, and we ended up getting a million-dollar price cut, paid 25 million and just to make the story short here. We just sold it about a month ago for 42 and a half million dollars.

Andy Sinclair (08:33) So that's all-public disclosure. And available for people in the Kansas City Business Journal. So, but we're on our second fund now and our various side cars. About 40% of what we do is industrial, another 40 percent's apartments, and the last 20% is strip retail, little bit of office, little bit of self-storage. So, we're unique Adam in that we invest in the main food groups. Most groups are what I would call new school, and they invest in just one or two property types. So, we're diversified.

Adam Hooper (09:05) And now starting the business right around pre covid. I mean that couldn't have been very easy. Right? Obviously, you've got partners that have been through multiple cycles. What were some of the challenges of doing that? You said just investors with the uncertainty, not funding some of their capital commitments, but operationally. How did that go? Starting up in a very disruptive time of just everything, right?

Andy Sinclair (09:36) Yeah. I will tell you. It helps to have really experienced teammates and partners, and so we co-founded Midloch with several great people. Including my partner Josh, who's an operator at his core. So not only were we communicating and having tough conversations with investors, and by the way, the sky was falling at the time and people were curious if their money was even going to exist, if they were going to die from covid 19. We've obviously since passed a lot of those days. But a lot of communication with tenants, with investors. Some tenants didn't pay rent, it's easy to kind of forget now that we're a few years past that. But it was a scary time. And so, I definitely mentioned to one of our employees at Midloch that while it was a scary time and a tough time to start the business, it was also one of the best times of my life, right? You really honed in your relationships that mattered. And from a real estate investment side, it was some of the best buying opportunities. What was unique and a blessing, so many of these big groups, Adam went off and started these distress funds like Blackstone or Starwood or Lone Star. But what was interesting about Midloch is we already started a fund. So, we already had a fund raised and we're out deploying capital even though we had some investors that, no showed, as I just mentioned. And so, we went out and actually. A good amount of covid 19 distress assets. The discounts really only lasted six to nine months. And so, we had a great time buying and we've started to actually sell some of those covid 19 discounted properties that have come back to kind of full pricing if, if you will. So, scary time, but also a great time to make money. And one lesson for the group here in times a great dislocation and sometimes the time to make the most amount of money.

Adam Hooper (11:15) Right. And that's where the opportunity comes. And I guess,  I don't know that we ever saw the amount of distress that we necessarily thought we were in the early days of Covid, and we talked about it a lot in the show, right? I think everybody was curing up for a pretty massive distress scenario, and a lot of capital, like you said, was raised for that, but it didn't seem like it really materialized as deeply as we would've expected for those buying opportunities. Did you guys see that? And maybe as we start to shift the conversation towards the industrial part of the conversation. I guess how have you seen that asset class hold up over the last couple years?

Andy Sinclair (11:54) Yeah. I will tell you. I think industrial is one of the best asset classes and held up relatively unscathed as you look at Covid 19 as a whole. In terms of Covid 19 of the discounts. I agree with you all those funds, the mega funds, I like to refer to them that raise capital to put it out. They largely missed their window. You really had to have dry powder if there was a discount right then and there so that. Call it April 2020 to really about maybe March of 2021. That's really when the discounts were pretty much done at that point. Interest rates had dropped quite a bit. a lot of people were borrowing at. 3%, sometimes less than 3%, those rates are not available today in the marketplace where the federal government borrows it three and a half percent. And so, we took advantage as many discounts as we could. But as we kind of pivot here, Adam. I will tell you industrial, it had a lot of tailwinds. I mean, I'm sure everyone experienced sitting on their couch during Covid, probably ordered something online. But even maybe what they don't think about as much is that China and some of our counterparts across the world were shut down. We had supply chain issues and still do. There were supply chain issues popping up as early as April and May of 2020. Lots of articles were written about it and it's in the news every day now. But it was a kind of like wink, wink. It's not that big of a deal in May of 2020. And turns out here we are three years later and it's a big deal, but it has a big impact, actually, an outsize impact on what's going on in your local warehouse and industrial market.

Adam Hooper (13:29) And so I guess to that, when you look at some of the supply chain issues. How have you seen the industrial space or the industrial market change since then? Or are there, again, this is something we talked about coming out of the covid crisis. How have some of these asset classes changed? Are there going to be foundational changes to how that asset class operates long term? Are there going to be more shorter-term impacts? Have you guys seen anything from, how industrial spaces utilized, least, what people are thinking about. You sent over some articles before that will maybe link in the show notes for some listeners too. What's changed Pre Covid to now in the industrial space?

Andy Sinclair (14:16) Yeah. Let me highlight a few more things for the group here. Adam, one thing I've got a couple stats, and this comes from Cushman & Wakefield's, midyear reports, so it's available in Cushman & Wakefield's national site. But there is currently 700 million square feet under construction. That's a lot of square footage. Now, Cushman & Wakefield also quotes the vacancy rate at 3%. Regardless, if you look at CBRE or Co-star, whatever your national source of news might be, you're going to usually see a vacancy rate. No, 2%, all the way up to 10%. Those are really good occupancy rates. It means that despite all this building occurring, there's a lot of need for warehouse buildings. And let me answer your question a little more in depth, is that what we've seen from pre Covid to today is that there's been a lot of eCommerce. There's lots that you buy online and every time you add a something online, there's a need for not only the way to ship it to you, but a way to reverse ship it to you. If you drop it off at your FedEx office store, which is a strip center. Which Midloch also owns. How does it get to a warehouse to make it back to the end user, which is the store that sold it to you. So that's the kind of item number one. Then also supply chain we've seen. Everything from computer chips, which has been well documented, with the US moving computer chips out of Taiwan and into markets like Phoenix or Columbus, Ohio. Two really good markets for a few different reasons, what does that mean in terms of supply chain coming home? We're referred to in the business as on shoring. And so, there's different needs here. Adam, I will tell. But one other trend that I don't think people thought about as much until recently is what's known as Last Mile. And there's been a lot of trends and Amazon included by the way, is that, while you want to have these sexy, eCommerce, robot robotic, buildings that can sort packages really quickly. Is that ultimately you also want to be located pretty close to where the end consumer is. Which is where, you and I or someone else might live. And so, we've seen a big need on people coming back to these infill submarkets. Cause if you want to build a new building, post covid odds are you're probably going to go pretty far out. It's hard to assemble a land site to build these half a million, million square feet. So, there's been a lot of reuse of buildings that people might have thought might have been obsolete pre covid.

Adam Hooper (16:38) And you sent an article over, that referenced a 3.8 million square foot five story Amazon Fulfillment Center. That's, that's crazy, right? I mean, five story industrial warehouse. That's certainly new, right? And I think that's probably speaks to that Last Mile. Need to be close to the population centers. Right? If you can't build a sprawling, massive industrial park as we used to think about it. Are you seeing more vertical construction, more multi-story industrial? I mean that was unheard of 10 years ago.

Andy Sinclair (17:11) I think that definitely grabs the headlines, but I will tell you, there's still a lot of horizontal development, one floor. Certainly, if you get close to like an inner city like Seattle or Chicago or in certain parts of New York City, you're right, you're going to see these multi-level, elevator type buildings, which is ironically how the warehouse buildings were at the turn of the 19 hundreds, these three, four story buildings. Kind of a reversion to the mean if you will. But still seeing a lot of horizontal just  but the clear height's not as high. They're repurposing buildings that maybe had 16, 20, 24-foot clears. But the reason those buildings are in need, even though they can't stack as high, if you imagine a racking system, how high it can go to the ceiling is because the goods are coming and going pretty quickly.

Andy Sinclair (17:59) And so they don't need to go as high to the ceiling if they can move the goods from point A to point B and get on the truck pretty quickly. So, I definitely think that there's going to be some trends like that that we're going to see. One thing I want to also mention, and this is a change from pre Covid, it's the amount of rent growth. And so that's why I think you're going to see amount, not only is the record demand. But we talked about record occupancy, there's almost no vacancy across the US. Which is astonishing given the level of supply and with that we see this in our own Midloch industrial portfolio, we're having record rant growth that might be at rates that you never would've thought were possible even just two years ago.

Adam Hooper (18:37) And in that report, I think that was the Cushman & Wakefield report you sent, over year over year rent growth, 19% up. Which is insane to think about in the industrial space. 20% rent growth in a year is certainly a massive spike. I'm assuming not sustainable. You guys aren't building in 20% rent growth into your performance. Are you?

Andy Sinclair (19:02) And definitely don't let our team project that now. We'll gladly accept that. If the rents want to keep growing at 19% in a perpetuity, by the way, some groups, that may be paid record low cap rates may really need that to make their math pencil. But no, certainly at Midloch if anything, we're under projecting. But I think the days of projecting 2% rank row three, 4%, those days are largely gone. And what we've seen is that the market rent, the face rent that you charge for the tenant the first time they walk in the door. I provide this stat; I think in our pre-meeting for this podcast. We had a tenant, Thermo King, so big national tenant that you've probably have seen on highways or other warehouse buildings was paying 3 75. Right. So, a pretty low rent. Our starting rent for our new tenant, which is on a five-year lease, started at five bucks with annual rent increases ranging from four to 6%. So big annual increases, but the starting rent was a whole dollar 25 higher than where thermal king even was for this building. So, I think we have not seen the end of large increases both on an annual basis and on a reset of rent for old tenants.

Adam Hooper (20:13) And now you mentioned, Phoenix and Columbus, Ohio, you said are some of the markets that are attractive? What are you looking for when you're starting at a market level? What makes a market attractive? Or maybe what are some no-go zones for you when you're looking at markets for new acquisitions?

Andy Sinclair (20:34) Yeah. The biggest thing, and even though we've talked about record demand, it's still supply demand and looking at what possible imbalance there could be. While there's record demand, there's also a lot of submarkets on a micro basis that just have overbuilding. And so, you got to be a little bit careful. But in terms of a macro perspective, we look at where rank growth is. What's been, an issue, Adam, I will tell you for Midloch and I'm sure that just for us, but probably a lot of groups is we're what's called a value investor. So, it's some of these markets, that are growth markets where the cap rates or the price is relatively high, right? So very low cap rate, high price. And so that's made it tough, even though you want to believe in that 19% year, year, year over year growth solo's been a little more biased to some Midwestern markets or some markets like a Memphis, or markets that are Columbus, Ohio. You mentioned, where we can still get really good year over year growth, but maybe we're not paying as high of a price as you might pay and what's the Inland Empire, which is part of LA's Port area? Or some of those other markets like Miami or Savannah and was on the call today with Jones Lang Lasalle, who represents the Southeast. Shout out to Dennis Mitchell, who's runs that office, great guy. If you want something by the Port of Savannah or Charleston, you're looking at a cap rate. Even despite interest rates running, that's still between three and a half. Four and a half percent. It's a really low cap rate. And so that makes it tough is where do you balance the supply demand fundamentals with the pricing?

Adam Hooper (22:08) And I guess, how much of an issue do you see that pricing, becoming or, certainly as we look at an inflationary environment that we're in, we look at interest rates continuing to creep up. Where do you see, pricing and again I might kind of ask you to put little crystal ball in here. But I think we've talked about industrial as being very, it gets weathered this last downturn exceptionally well, as you mentioned before. And the resulting pricing has remained high. Does it continue? I mean, does it break at some point? It just seems like there's so much demand for capital chasing industrial properties right now. That it's not necessarily artificially inflating this pricing, but it's certainly bullying it at that higher level. Right?

Andy Sinclair (23:00) Well, I think it goes back to Adam, to your first part about Covid 19. And so, I think if you look at a lot of the institutional groups, the MetLife, the PJs, the Goldman Sachs, Invescos, people that are investing in real estate, big money center type banks, before they might have had, call it 10, 20% allocated to retail or office or wherever, asset class it might have been. And they've taken all that allocation and said, we don't want to own hotels, and they probably don't want to own office buildings right now. Right? Life's too short for them to have those headaches, and so they've ripped those allocations away and put 'em into apartments and industrial and a few other things too.

Andy Sinclair (23:36) It's more specialized, so it definitely makes the pricing high. I will tell you from an anecdotal perspective, what we've seen at Midloch, we've seen anywhere from a five to a 10% pullback in pricing really is a reset of what's happening with interest rates. Now, one thing that's always been a little bit of a head scratcher that my team and I talk about all the time is that apartments are still, these nose bleed valuations, but really we think industrial as a whole is a better asset class. You have what's known as net leases mean that your tenants pay your expense inflation. So, if your expenses go up, well, guess what? There's an automatic rent increase for your tenants to cover their portion of the inflation or expenses that went up. And so, you're a little bit hedged from that perspective. But then also, you have really high rent growth. So definitely I think there's a lot of things that can justify that Adam, but there's definitely been a pullback and a reset as you look at what's going on with the US treasury market.

Adam Hooper (24:33) And then switching now maybe a little bit more granular to the asset level you mentioned. When you're looking at a market, you get down even to some of the submarkets, you look at supply what's there under construction, all that good stuff. Once you've identified a market that you like the macro picture of, what are some of the more on the ground factors that you guys are looking at? And again, I think keeping in mind most listeners of the show are investors that are thinking about how to invest in these different strategies, right? These different asset classes. So, with your investor hat on, what are you guys looking at on the ground level when you're analyzing an industrial property and what are some of those things that the listeners can maybe be thinking about when they're seeing industrial opportunities presented out there?

Andy Sinclair (25:19) I think that's a good thing to be thinking about, Adam. What are things that maybe people don't know at the micro level? And I definitely believe that the most important thing in a micro level, it really comes down to your leasing team and leasing velocity. Certainly, strong markets and strong fundamentals will help you lease it quicker. But I'll use an example on the large side, and you've seen some Amazon oriented headlines of them pulling back and not leasing as many buildings. They just have too much, and frankly, they probably just overcommitted. But is there leasing velocity for your size tenant? So, if you're building a 500 square foot building or investing in one, Is there demand? Are there a lot of tenants looking for that type of space? My preference is for multi-tenant buildings, so they can range anywhere from as little as 5,000 square feet up to a hundred thousand square feet depending on how you slice and dice the internal spaces. And so is there demand for tenants of 20,000, 40,000, 10,000.

Andy Sinclair (26:15) And so you really need, whoever your operator is, whether it be Midloch or somebody else to make sure they have a local boots on the ground leasing team. And then after you identify that. My most common things I always point investors to on industrial is holds the roof. That's the one thing that's really hard to recover. And it's true for apartments too, but if your roof's old, that's a big cost. You talk about inflation data, we've seen roof, my old rule of thumb when I started was kind of four 50 a foot. A per square foot for a roof. Well, I've seen roofs range from eight bucks to 15 bucks a foot. So, you've seen a doubling and tripling in some cases in your roof costs. So, you got to be careful on how old your roof is. If it's new, it might be a little bit different. You got to be careful what type of material, your building's built out of. Is that going to weather or age well and then one of my favorite ones that I don't know if everyone always thinks of. How is the dirt underneath you? A lot of these warehouse buildings are built either on old dirt, and what I mean by that is there was manufacturing, or they're built for far out. And so, it's not uncommon in our business to get what's called a phase one or a phase two, which is an environmental report. And phase two means they drill into the dirt and test samples. Is the dirt contaminated. We just bought a warehouse building, today, this morning, and that was one of the first things we did was check the phase two to make sure that the ground was going to be okay. And made sure there was an appropriate government letters that said we were okay. Because you don't want to be responsible as an investor. Whether you're a minor investor, a big investor, you want to make sure that the environmental concerns are taken care of. You don't want some guy dumping something off your site. So, start with leasing, then work your way down to things that might cost you money.

Adam Hooper (28:03) And now you mentioned, certainly the age of the roof, the type of construction. And when you say you guys are value investors, most listeners are probably more familiar with that strategy as it relates to a multi-family project, right? Coming in and doing a refresh in the interior units, increasing the amenities new branding, and that's how you create that value that you can effectively capture some of these new increased rents. What does adding value look like in the industrial space?

Andy Sinclair (28:31) It's a good point. Cause I do think that a lot of investors, they only see the apartment side and it's very common. Even my own portfolio outside of Midloch, definitely overweight apartments. I would tell you, and you know my favorite phrase to describe how a value investor is we really try to pay 80 cents for a dollar today. Instead of paying a dollar five and hoping it's worth a dollar 25 in the future. You still make the 20 cents delta, but you're hoping to get at it two different ways. And so, from a value perspective for industrial, it's different, right? You're not necessarily renovating a building, though you can curb appeal is important. I can't begin to tell you how many times we take over building and its missing leasing signs. Kind of going back to my very, local roots when I started off in real estate. So, making sure there's adequate leasing sign or signage. The tenants know you're there. Also going back to leasing, making sure that brokers and tenants in the submarket know that your building's available. It seems really basic, but it's something that's just not done, just like communication. Other things that we do at Midloch and we've done several times, we look at green incentives. I think this is going to become a little more in vogue as Congress just packed their past their inflation reduction act.

Andy Sinclair (29:41) But so often there's local incentives either at the state or national level or using an incentive like pace. That we try to use at Midloch as a way to enhance value by just using the green, essentially green incentives or green financing that's out there and available. Other things we look at, Adam that maybe most people don't, and we bought a building and it was on RealCrowd as well called St. Anthony. It's gone very well, is it had 12 acres of land. It had a lot of ex's land. I can't begin to tell you how many times as well people. They overlook their land, right? It's just green grass. Weeds are growing, who cares? But you could lay more asphalt, right? You could have more trucks parked there. You could build another building if it's big enough. I've seen that done in our portfolio. So, we always look for things that maybe seem obvious but other people aren't doing. And so, whenever we can find two or three ways that we feel good about, other than rent growth, that can always be a way, but it can't be the only thing. Those are deals. As a value investor, we really go after.

Adam Hooper (30:42) Yeah. And then maybe talk a little bit, I mean, that sounds great, right? Buying something at a 20% discount to today's value, how are you guys able to do that? Right? How are you finding these deals? How are you sourcing them? Is it a non-core assets for some of those institutional funds that you said are maybe trying to shed some of their ancillary strategies as it mismanaged properties. Like how are you guys unlocking that value? You don't have to give away any secret sauce, but I'm just curious.

Andy Sinclair (31:10) It definitely is both Adam and I won't give away all the secret sauce, but I will tell you that Midloch, our core strategy is while we are an operator and have management people internally, we also partner up with local leasing and property management companies and share the fees. Which is a really uncommon strategy. We really believe in over incentivizing our local team to get the property leased. It's kind of pride of ownership. They always make sure the property's lease first, if they have a cut of the profit versus if they're just a gun for hire and getting a small brokerage commission to get it leased.

Andy Sinclair (31:43) So that's part of our local strategies to have boots on the ground that helps source deals. But to hit ratio is still low. It's one or two out of every hundred deals you see and so you might find one or two deals you like and they don't always work out. But to answer your second part of your question, we see both in terms of buying from institutions. For instance, there's a deal that we've gone full cycle on, called Front Range in Boulder, Colorado. We bought it from a public REIT and this is a true story. They were selling the REIT, they're now no longer existing. I won't say their name. And they wanted to meet quarterly earnings, 40 billion dollar REIT and they sold it to our group at about an eight cap in Boulder, Colorado fully leased industrial warehouse building in the Boulder submarket. I wish I was making this up, but it was kind of a rounding error for them. There are so many billions bigger that somebody stopped paying attention. That's a great story. I always bring that up because so often I think people want to imagine that there's some local mom and pop owner that's just not paying attention, doesn't know any better, but you also get large money investors that are just too big, and they also don't pay attention. And so we try to buy from both. because we're opportunistic, we're willing to buy from whoever, frankly, gives us a good deal.

Adam Hooper (33:06) And now when it comes to the exit side of that, the other end of the transaction, you've mentioned you guys have taken some of these deals full cycle now. Are you generally looking at things on a longer term hold more opportunistically? Like how do you determine when is the right time to exit a property once you've owned it and operated it for a period of time.

Andy Sinclair (33:27) Similar to a lot of other groups, Adam. We put a bell curve around five years. So, whether that be three years or seven years, that's typically the range. We hold something and we finance that accordingly. We prefer fixed rate financing. We don't believe in stretching and taking high leverage and that 70, 80% range Midloch portfolio as well is about 60%, leverage. So, a lot lower leverage and that three-to-seven-year range, occasionally we might hold closer to 10 years, but if the pricing's good, one thing the group should know is that it's okay to sell buildings. You never take a loss if you sell a profit. And so, we've sold a couple buildings a little bit earlier than even that five-year bell curve simply because, we could make good money, we could essentially sell it at full price. That Boulder deal, for instance, we paid about $17.5 million. We projected to sell it at about $20.5 million, and we sold it for $21 million, 15 months later. So, we quickly close the discrepancy from the public REIT. By the way, we also put some green incentives on that deal. So, we were able to use the local government incentives to make the building more energy efficient and get paid for that. So there's always ways to find value that maybe people aren't thinking about.

Adam Hooper (34:44) I think I'm going to put that quote up on my wall, Andy. You never take a loss if you sell it a profit. That's a deep, it's a good one

Andy Sinclair (34:52) We'll put it on a poster board, and we'll send it to your office, Adam.

Adam Hooper (34:56) Perfect. You mentioned you invest in some other deals, right? With other managers. Again, kind of putting your investor hat on. You mentioned you guys are obviously, one of the things you look at. And think is important is kinda that local leasing strategy and boots on the ground. When investors are looking at industrial sponsors, what are some of the other things they might be looking at or some questions they can ask to those managers trying to get comfortable with the strategy or the team?

Andy Sinclair (35:28) Definitely you always want to ask about their track record, what their experience is in leasing and operating, whether it be industrial office or apartments, frankly. What's their experience in leasing those buildings and if they lack experience in one area, what are they doing to supplement it? One thing, buyer beware. But one thing I see a lot just as I've invested with a lot of non Midloch sponsors is be careful what the fee structure is. I know there's a lot of investors out there that read every legal doc they get sent. And Midloch, I actually truly believe is on the load of medium end of fees. But there's a lot of sponsors out there that charge high fees because they bank on investors not reading the LLC agreement. So highly recommend everyone reads their LLC agreement, asks questions, make sure the incentives are aligned, and then make sure they have experience. I think that's something that gets left unsaid is, I've been buying industrial buildings for, over a decade, and some people they read about it online and started doing it, and they started raising money, and that always makes me a little bit nervous.

Andy Sinclair (36:30) And so that's my biggest 2 cents takeaway, and you can never do enough diligence. Sometimes I think as a manager you want to say Enough is enough when people ask questions. But I think about it from the other perspective. My mom's an investor and my mom doesn't know what to ask, and she always. Feels better when someone takes time to walk 'em through the unobvious. So, find a manager and an operator's willing to teach you as much as they are to take your money. One last anecdotal note. We on this Last Mile portfolio, which was up on RealCrowd as well we sent out the update last week. What was going on at the property, but we put a dictionary thing in our email and said. Hey, we're referencing CAM because we know that not everyone knows what CAM is in lingo in the real estate world. So, we try to take time to teach our investors what we see, not just give them money and have a very transactional relationship.

Adam Hooper (37:30) Nice. And as we wrap up here. You've mentioned a couple reports and we'll have links in the show notes to those. What are some of your favorite data sources that listeners can pay attention to or check out when they're trying to get, kind of wrap their heads around what's going on in these different markets?

Andy Sinclair (37:47) From a national perspective, if you are willing to pay for the subscription data, it's not cheap. A CoStar is still one of the best out there. From a free perspective, CBRE, JLL, Cushman, Marcus & Miller. I'll have excellent national research and they do not charge for it. So that's a free version if you can't afford the CoStar subscription and then also if you're fortunate enough to have access to local data from your local brokers. That’s stuff you can't pay for, but we are always on a quarterly and monthly basis. Hitting up our connections to find out what they see, what's different from the national reports. even today mentioned talking to JLL and just seeing what they're seeing in Savannah and Atlanta and Charlotte and some of those local markets. And then lastly, there's a free source that I do recommend called Biznow. It's a news source for real estate, they don't charge anything as well. It's a great way to get access to kind of both local and national news for real estate. And it's one of the better reporting sites out there.

Adam Hooper (38:49) Perfect. And we'll have links in the show notes for all those, so make sure you check them out and read up on what's going on the state industrial. So, Andy, what has you most worried right now about the future of industrial space? What's keeping you up?

Andy Sinclair (39:03) Well, it's all been roses and butterflies Adam. So, there's not been a lot of negatives for people to worry about. But I'll give you a few, interesting things to think about. And I don't think there are things that people need to worry about today, but there are things they should be thinking about, which is, is there going to be a day where maybe we don't need all these warehouse spaces? it becomes obsolete space. Is there going to be drone deliver? That's something Amazon's toyed with. It's a little bit of science fiction for now. but something they're certainly trying to figure out if they can put a blimp in the sky and just have, drones, air drop you, your Amazon packages. Also, is there things from an advanced manufacturing perspective that we just need less space? Because the process got more efficient right now. So far so good. I don't have a lot of things that keep me up at night on the industrial side other than cap rates being low, so meaning high prices. So, a lot of good things going on in the space.

Adam Hooper (39:58) And what has your most optimistic? You sound like you're maybe a little bit skeptical of drone delivery or you're not optimistic about the future of drone delivery industrial.

Andy Sinclair (40:07)  I mean, it sounds great. We get multiple deliveries a week. I'm all for it, making my life easier, though it might increase my Amazon and FedEx Bill on a weekly basis. But I'm very optimistic and I think Adam's going to include in the show notes here, if you're fortunate enough to be an industrial investor, I know a lot of people, apartments is maybe the only thing they've invested in. Can't emphasize enough that I really think it's as equal and good asset class. Believe you're not giving up anything in terms of your value proposition and likely have a little more of an inflation hedge. So, I think industrials got a little bit better inflation aspects than apartments do, so it's worth checking out and hard to argue with 19% year over year rent growth.

Adam Hooper (40:54) It's crazy. Well, Andy, I think that's a good spot to wrap it up. This has been a great conversation. How can listeners learn more about what you're up to with the team at Midloch?

Andy Sinclair (41:03) Come find us at That's MIDLOCH, just like the lock nest monster. So or shoot me an email. Always happy to chat. My email's really simple. Just  

Adam Hooper (41:18) Perfect. Well, Andy, thanks again. It's been a long time coming. Glad you could take some time with us to talk today about industrial space and what's going on, so we appreciate you sharing your thoughts.

Andy Sinclair (41:27) Thanks for having me, everyone, and RealCrowd, thanks for being a part of our lives. We enjoy working with our RealCrowd investors.

Adam Hooper (41:34) Perfect. Well, everyone, that's all we've got for today. I hope you enjoy the conversation. As always, if you have any questions or comments, please send us a note to And with that we'll catch you in the next one.

Want to see if raising capital online is right for you?