WS1571: Connecting With High-Net-Worth Individuals | Joel Friedland

EPISODE 1571

Joel Friedland (JF): You have to know how to take adversity, and I didn’t. I’ve never seen adversity. So now what I do is when I call people I open with, ‘Hey, in 2008, I went into a depression because I thought I lost everybody’s money. If you invest with me, you’ve got that guy with that experience. And I’m not going to let that happen again if I have anything to say about it.’ And, that’s why we do our deals all cash.

Whitney Sewell (WS): This is your daily Real Estate Syndication Show. I’m your host, Whitney Sewell. And we are back again today with Joel Friedland. You just heard his first episode yesterday. If you didn’t, I hope you will go back and listen. Man, 40 years in real estate and industrial real estate, very focused in that space. And he has done very well. And I hope yesterday you heard how he shared about 2008. And what happened to him, and how that changed how he moved forward in this business. It’s very interesting to me, and I think it’s very again, I think it’s very timely with the economic cycle market that we are in right now.

Today, you’re going to hear how does he decide to move forward on a deal? And I think it’s a process that is probably healthy for anyone. I want to think through this myself. But ultimately, this board of advisors that you’re going to hear about, and even some more about the structure of these deals. But then also, you know, just some of the final questions that I asked him that I asked almost everyone, just some interesting things came out. And I really enjoyed this time with Joel and I know, you’re also going to learn a lot from him again today.

[INTERVIEW]

WS: You know, sometimes we make decisions. And I have to wonder, did they have too much coffee? Or was that making them feel that way? Or maybe it seems a little different than they did the day before? But yeah, you’re right. 

We should assess, you know, why are we making these decisions. And, I like what you talking about, I need to know all those details during the due diligence process, and it’s not just making this decision, because I feel like I’m on a high or I can’t be stopped. So yeah, no doubt about it. 

I like how you said too, you know, the eight advisors that you talk to before you do a deal. And then whether you’re on, your scale, whether you’re a three or whether you’re a nine, hopefully talking through this deal with these eight people, it’s going to help bring you back down or bring you up one or the other depending on this specific opportunity.

Maybe speak to that process a little bit about how you found these eight, and then, is that one conference call kind of what the structure that a little bit, I love that, you know, the advisory type approach like that.

JF: Well, so I’ve got 200 investors in my group. And I know them all. One of my habits is I talk to at least three of them every day. And I run things by them, and they run things by me. I put together this advisory group because of the fact that I got in trouble in 2008. And I believe that it’s important to get other people’s opinions, especially smart people who are solid in their judgment in business. 

So, I looked at who my investors were, and I got in touch with the ones that I felt would really be great advisors and who I could trust the most. Steve Podolski, who was my original mentor, Milt hired me but then he put me instead of to work for Randy and management, he put me to work for Steve, and a guy named Richard Levy in the brokerage business. Steve is still my main advisor. If I call him and I say I’m thinking of a deal, he gives me seven details to think about. And every one of them’s a trip up. Every one of them is, if you don’t know this answer, you shouldn’t do this deal. 

And there are seven others that – Nate Wagner, who’s one of them, he’s, he’s tremendous. He’s 95 years old. And he’s been investing with me, he and his family for 20 years. I won’t do a deal unless he signs off on it. And he’s, he’s really smart and capable. And he’s so low risk, he loves the no debt, and doesn’t want to lose his money. And I’ve got six others – one runs a business that manufactures some products. One’s actually an industrial real estate broker. So they come from various walks of life. And I just love these guys. They’re really great. 

One is a woman who sold her business and she built it up from nothing, and she and her partner sold it to a venture capital firm, she’s sitting on a pile of money and she’s scared to death because she doesn’t want to lose it. So that’s really my group and I really want to tell you how much, how grateful I am for them. And I tell I tell them how grateful I am for them. 

WS: Speak to connecting with high-net-worth individuals like that earlier on in your career.

JF: I’ve got a great story. This one is a story that has a bad ending. It’s actually a good ending, but a bad ending. I one point was playing a lot of golf and I was a member of a country club that was a block away from my house in Deerfield, Illinois. And there was a guy who I knew from the golf course and I knew he was a billionaire. And I knew that he was running a company where he just he makes a fortune. And I contacted him on the phone and I said, “Teddy, I want to get together and talk to you about an investment opportunity.” He says, “Well, that’s interesting. My family has a family meeting every first Wednesday of the month. And we sit around the dining room table and people come in and they pitch their deals.” 

WS: Wow.

JF: So I said, that’s great. So it was 2007. Okay, so Joel’s flying high, I can do no wrong. I’m just like, so successful. And I think I’m hot crap. So, I go and I sit down with them. And Ted says, “So Joel, tell my wife and my three adult children, why we should invest with you.” And the first thing I said was, “Well, I’ve been doing this for the last 17 years, and I’ve never lost anyone’s money.” And Ted looks at me, and he says, “Meetings over, we can talk social, and we can be friends. And we can play golf together, but we’re not investing with you.” And I said, “But why we’ve never lost anyone’s money.” He said, “Because you don’t know what you’re talking about. You haven’t admitted that you got deals that you own, that aren’t great. There are deals that in your mind, you’ve tricked yourself into believing because nobody does 70 deals and has no bad deals. That’s BS.” He said, “Come back when you’ve lost money, and you know how to handle it. And then we’ll consider investing.” 

And so that was 2007. And 2008. He was proved right. He didn’t become a billionaire for nothing. This guy was really right. You have to know how to take adversity, and I didn’t. I’ve never seen adversity. So, now what I do is when I call people I open with, “Hey, in 2008, I went into a depression because I thought I lost everybody’s money. If you invest with me, you’ve got that guy with that experience. And, I’m not going to let that happen again if I have anything to say about it. And that’s why we do our deals all cash.” 

By the way, I called Ted about a year ago. And I said, “Are you ready?” And he said, “No.” He says, I still have a bad taste in my mouth. I couldn’t get him. Even though like I’m the safety guy, I’m going to extreme financial safety. But you know, you make the first impression. And sometimes it just doesn’t change for somebody.

WS: I would say you’re so much better off because of the lesson learned. Right? And I mean, that’s paid you probably so much moving forward with so many other conversations that you’ve had with investors, to say the least. We’re getting low on time. But I want to jump to be out here to have a minute to speak a little more detail about the structure and business plan of your types of deals. And you know, talking about a little more about the security and why they’re so safe. And some of that to even, you know, going through no debt and some of that.

JF: Sure. So we don’t do funds, I don’t like funds. I’ve done funds. 

WS: When you say funds, do you mean like a multi-asset fund?

JF: Multi-asset fund. I don’t do that. We do property by property, I can explain that. But I don’t like funds, because it puts the money in your pocket and burns a hole in your pocket, and you need to go spend it. I like individual deals because people can pick and choose. And that helps me, before I finished my due diligence, I’ve talked to 17 or 25 investors, and they all asked hard questions. And that’s part of my due diligence per property. 

If we were in a fund, I’d be making the decisions, I wouldn’t have to ask anybody. So we only do deal by deal. And what we do is we cold call, we find our deals. Still, by cold calling, I have people who do that door-to-door for Chicago industrial. And we’re hyper-focused on that. So we find a deal. And usually, we buy a building from a family that wants to get rid of an asset that’s almost across the board what we’ve done. We don’t very often buy from corporations, because they put stuff on the market, and then a broker handles it, we have to get involved in all that. We find these deals and we figure out what we think we should pay. 

And then, we syndicate it by putting together a private placement memorandum. There’s only one page of projections because there’s no debt. It’s not very complicated. It’s got our track record in it. And I say I’ve lost money on seven of my deals, and they were held. And that’s right in the track record section. I don’t try to hide it. 

So, I talked to people and I say the return on this deal is an unlevered 8% yield. And here’s where the risks are. And all the risks are the same – vacancy, vacancy, vacancy because we do single-tenant industrial buildings and if the tenant leaves, it’s 100% vacant. 

And we’re good at filling them because we have all these industrial broker relationships. And because we know a lot of the tenants and owners from cold calling, but that’s still the big risk and we tell people that but they come in and our increments started at 25,000 to get people started they sometimes want to even if they’re very, very wealthy, they say, “You know what, I’ll put 25 in to get to know you.” 

Oftentimes people say I want to put 250,000 in, and I talked them into doing less. One of the big reasons is it’s hard to find deals right now. And I actually need more buildings in order to satisfy the appetite of the group of investors. But they go in, and we send out our distributions quarterly. So everybody gets 2%, a quarter set by ACH. And the communication is really good. We send quarterly reports. And if any investor calls me, I take the call immediately. My belief is if someone wants to talk to me, they’re important to me. I better talk to them within the hour. And I do.

WS: No, that’s incredible. I just appreciate the importance right on the relationship that you’ve definitely hammered out even through our conversation in many aspects you talked about that I agree completely. And it is so important. And we’re always trying to figure out better ways to take care of our investors, or what’s a better way to communicate? Or how do we get, you know, it’s always this thing we’re just like, constantly working on it seems as a team. And so I just appreciate the emphasis that you’re putting on that even talking to your deals a little bit. 

How long are you holding these projects? What’s kind of the plan? How many investors are going to be in a typical deal? How much say do you give them in that you know, the hold, or all that stuff?

JF: Our average period is seven years. But that’s only because we sometimes flip the first year. And that’s because we get there before the neighbors get there. And the neighbor finds out we bought a property and the lease is coming up and they have, in industrial a building is a tool for their business. They’ll overpay for a building, it’s not a cap rate deal. They’re buying it to move into it. And that’s the key to the whole thing. 

I’ve got a building that I did with Milt Podolski in 1990. So we’ve owned it for over 30 years. And we’ve got a great tenant, it’s called Feed My Starving Children, and they raised $65 million a year. And they pack food, church groups and school groups pack food, and they have missionaries who distributed overseas. I never want to sell that building, it’s a great tenant, it’s heartwarming, and my investors love it. But if an investor wants to get out, there’s something called Rule 144 of the SEC, which I learned from my SEC lawyer, I can introduce one investor in my group to another and if someone wants liquidity, I can get somebody out in a couple of days because someone else will take them out. And it’s not offering securities, that’s actually a different thing when it’s matching people up. So that deal we’re Feed My Starving Children is in that 20,000 square feet. 30% of the original investors are still in and 60-something percent were bought out by others. And they’re all pretty happy with the buyout, and they have their money, but the ones who wanted to stay in with me are still in it, that’s an oddball. 30 years, owning a building for 30 years is way off the charts.

WS: That is off the charts. It’s interesting. I’m looking at that Rule 144 as well. And I wonder, you know, how do they value their shares? Is that just then based on that investor, then I mean, can sell them for whatever they want to sell them for at that point?

JF: Yeah, I publish the value every year based on comps and based on what the rent is, and looking at Cap rates and yields. And I give that to every investor. So when one investor talks to another, they’re looking at my report that says I think this building is worth $2 million. And then someone might say, “Hey, I’ll buy 10% for $200,000.” And this, the seller might say, “Oh, I’ll sell it to you for $220,000.” I let them negotiate with each other. I stay out of it. 

WS: Yeah. Now, that’s interesting. I want to look that up myself. But well, I want to jump to a few final questions. I want to get your opinion, Joe on this, your experience, 42 years, on a few other things as well. But you know, especially going through 2007, ‘08, you know, and then and even other cycles before that, downturns. What’s your prediction? What do you predict over the next year, 18 months, two years, currently, you know, in our market?

JF: If I had a balloon here, I would take out my pin and I would pop it because I think the markets gonna pop. I think there’s gonna be a big downturn in real estate. It’s been too good for too long. The Fed has been keeping rates low artificially, and I think people have made decisions that were based on things that were not necessarily as solid as they should be. So I’m not buying much right now because I’m afraid that if I buy something for $3 million, it’ll be worth $2.5 million in a year. I think we’re looking at something kind of bad.

WS: Yeah. So, your plan is really to hold out right now for, say 6 to12 months and see what happens?

JF: Yeah.

WS: What about any other ways other than, you know, no debt, which is pretty amazing? You know, are you preparing for a downturn? If you were to buy a building today, it did seem like a great deal, you just couldn’t pass it up. What are some other things that you might do outside of no debt to prepare for that downturn that you’re expecting?

JF: So first of all, we keep a lot of cash reserves. That’s really important. If we have six figures in the bank, in all of our deals in case something goes wrong. And ultimately, I have too much cash because we’re, we’re holding on to all these reserves. But the key in our business and industrials, good specifications, it’s having good truck docks, good access, for maneuvering the trucks, high ceilings. 

The secret to industrial, there are three rules in industrial, I don’t know if you know them. Parking, parking, and parking are three rules. So I like a building with a lot of parking. Because when someone moves in into a manufacturing, or business building, they don’t leave. So they grow and grow and grow. Their offices get bigger, they hire more people to work in the factory. And if the parking isn’t there to accommodate it, it’s a major problem. So if the specs are good, when things go bad in the market, we’re the first buildings theoretically that someone wants to lease or buy.

WS: What’s your best source for meeting new investors right now?

JF: Your podcast. Seriously, I think it’s really just referrals. The best. I have someone that was an investor with me, he was a doctor in California, and he died in his 80s. And his two sons called me and said, “We don’t know what we own with you, but explain it.” And I did. And they said, “Okay, now that you’ve explained it, can we bring our cousin Laura in with us?” And I said, “Sure.” And then they said, “We have another cousin who is a young doctor in Chicago, and he’d like to go in.” So referrals, referrals, referrals. My number one referral source is a guy who was an event planner, and a party planner who did weddings, Bar Mitzvahs, and birthday parties for wealthy people. And he’s a close friend. And he introduces me to all these people he’s done hundreds of parties for. And when he introduces me, they say, “Oh, yeah, Randy, we love Randy. Tell us about your deal.” That’s my number one source – this guy is a good friend of mine who does that.

WS: Wow. What’s his number? I’m just kidding. 

JF: I’ll introduce you. 

WS: So what would you say is your biggest challenge right now in your business?

JF: Finding deals is so hard. It’s really tough. In the back room is always hard. accounting, management, property management, we self-manage, and it’s so much work. And it’s a loser, we lose money on it. People tell me when I say we manage for 4%. They say, “Well, that sounds like you’re making too much.” And I say, “Tell you what, you do it. I’ll pay you the 4%. Have a good day.” And they say, “No, you can have the 4%. That managing is really tough. There’s always a broken HVAC. And even if the tenants are responsible for the cost of replacing it, they still call us and say, “Hey, it’s your building. I know what the lease says, “Would you pay for it?” And then we have to negotiate what we’re going to do. Like, do we split it with them? There’s so many complications in managing. That’s a big one.

WS: What about the most important metrics that you track Joel, it could be personally or professionally.

JF: I think it’s the number of people that I help. And it’s not the number it’s really helping people that needed. I’m mentoring right now, seven or eight people – a young woman in Toronto, who is just getting into real estate investment. Few people in Chicago. I love to mentor. My metric is if I’m helping somebody every day, it’s a good day.

WS: What about some habits that you are disciplined about that have produced the highest return for you?

JF: Sleep. I sleep. That’s the number one thing. I think if you don’t sleep enough, it’s really bad. And I tried to get eight hours of sleep at night and it’s really important to me because I think you’re fresher and better when you sleep. I know so many people who struggle with sleep, and so much of it is that they’re taking risks or they’re unsure of their future, and they’re just nervous. And they wake up because they have anxiety. And I’m trying hard to keep my anxiety level. I like serenity. I just, I’m just trying to sleep well at night by making really good judgments.

WS: Yeah, I like the stress on sleep. I know over the last few years, my wife and I’ve been more focused on getting, like just being in a good routine, right to bed on time up early. Because I can tell if I use that scale, like you were talking about earlier, I can tell I’m way down that scale if I don’t get enough sleep you know, especially a number of nights in a row, it does affect the way I feel and decision-making and all those things. In a big way.

JF: It’s hard though when you have a family and you’ve got kids because your life is so much more frenetic when you’ve got a family thing going. I’m a grandfather, my kids don’t take up my time the way they used to, which was the most wonderful thing you’re going into games and going to their events. And last night my granddaughter was over, and we built a fort right here. And I took that chair back there in this chair, and I put a big blanket over it. And we played like we were in a cave and we had little, little toys. We had a dragon and a witch and a frog. I think it’s really taking time for the little things in life and appreciating them.That’s what’s really important. 

WS: That’s sweet. That’s sweet memories right there. Right? So what about what would you say is the number one thing that’s contributed to your success?

JF: That’s a great question. I think changing who I was. I was risk-taking. I don’t even know what the word is. Because there’s no word that’s bad enough for me. Big Shot. And I think I don’t need to be a big shot, I just want to have good relationships and make good decisions. And to me, that’s everything in life. Once you’re there, everything else falls in place.

WS: I know you already talked about this a little bit. But how do you like to give back?

JF: Oh, mentoring is such a blast for me. Last night, I was having dinner. And this young guy called me and he was telling me that he’s had problems his whole life with his mom and his dad. There was some addiction stuff. And he had a talk with his dad, and it went so well. And he thanked me because I gave him some tips that I use for getting along well with family members because I’ve had a few struggles with some family member issues. And it just feels so good to know that I’m there helping him to do better. He’s in his early 30s I wish someone had told me when I’m telling you now, when I was in my early 30s I might not listen though.

WS: For sure. Yeah, that’s a problem, we probably wouldn’t have listened. But, Joel, I’m so grateful for your time and your willingness to share and being transparent about like the 2008 stuff, right? What happened? And you know, you’re just putting that out there. I think that just man builds so much trust with your investors as well. Right? And I know people are listening also and they want to hear how you handle that, what happened and you know, even you said, hey, you expect a pop right, you know, in the very near future and so we want to make sure we’re prepared just like you know, you wish you had been prepared then, right. And so hopefully we can all learn from you and our learning and so very grateful for your time today. 

Tell the listeners how they can get in touch with you and learn more about you.

JF: Our website is Brit Properties, B-R-I-T properties.com. And I want to tell you how honored I feel to be on your podcast. I’ve watched you I think you’re doing a great job. I’m really grateful to be on with you. Thank you.

WS: Thank you so much.

[END OF INTERVIEW]

[OUTRO]

Whitney Sewell: Thank you for being with us again today. I hope that you have learned a lot from the show. Don’t forget to like and subscribe. I hope you’re telling your friends about Real Estate Syndication Show and how they can also build wealth in real estate. You can also go to LifeBridgeCapital.com and start investing today.

[END]