Cold Storage Real Estate, With Chad DeBolt

With the rise of e-commerce and grocery delivery, is there a growing market opportunity for the cold storage real estate sector?

Chad BeBolt, managing director and principal at Saxum Real Estate, joins the show to discuss the current state of the cold storage real estate market, and opportunities for investors to consider.

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Episode Highlights

  • The primary demand and supply drivers that impact the cold storage industry and cold storage facilities.
  • The types of cold storage facility tenants, including 3PL services.
  • Risks associated with investments in cold storage real estate.
  • A breakdown of the competitive landscape across the cold storage industry.
  • An introduction to Arcadia Cold Storage, and Saxum’s relationship with the firm.

Guest: Chad DeBolt, Saxum Real Estate

About The Opportunity Zones & Private Equity Show

Hosted by OpportunityDb and WealthChannel founder Jimmy Atkinson, The Opportunity Zones & Private Equity Show features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in Opportunity Zones and the broader private equity landscape.

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Show Transcript

Jimmy: Welcome to the “Opportunity Zones and Private Equity” show. I’m Jimmy Atkinson. Today on the podcast, we’ll be talking cold storage and the growing market opportunity for this unique real estate sector. And joining me today to discuss this topic and more is Chad DeBolt, managing director and principal at Saxum Real Estate. And Chad joins us today from Austin, Texas. Chad, great to see you. Thanks for coming on the show. How are you doing?

Chad: Doing great, Jimmy. Thanks for having me.

Jimmy: Absolutely, Chad. And in addition to your role at Saxum, you’re also a fellow Domer like myself. You are a two-sport athlete at Notre Dame. So, always great to connect with a fellow Notre Dame fighting Irishman, so to speak.

Chad: Go Irish. Thanks for having me, Jimmy. I do appreciate it.

Jimmy: Absolutely. Go Irish. Hey, Chad, I’m guessing that a lot of my audience of high-net-worth investors and advisors may be somewhat familiar already with Saxum Real Estate from the different Opportunity Zone deals that you’ve been involved with. We’ve covered you guys a couple of times on the podcast and in our news articles over the years. But for those who may be unfamiliar, can you tell us a little bit more about Saxum and what is your role there?

Chad: Absolutely. Saxum is a vertically integrated real estate investment development company. We’re about nine years old now. I joined about seven years ago. I was really the second guy in, and the company has really just been an impressive growth story. We’ve really been able to scale it over the last really seven years. There has been a lot of growth. We have about 37 teammates now, spanning 2 offices between Austin and some in New Jersey. We have 7 teammates down in Austin, we have 30 up in New Jersey.

And really our goal was to create and is to create a vertically integrated network of investment development company. And we really focus on industrial and multifamily assets. Those are our main focuses. When we look at the multifamily vertical, we really consider housing, as we do have about 4,000 beds of student housing as well. But it’s really allowed us to find a unique way to make an impact on the real estate commercial side of the equation because, A, we do raise funds, we are a hybrid. We’re a private equity in regards. We have multi-asset funds, we do single-asset deals as well. But at the same time, we truly are sponsors. So, we are the sponsors of the deal, executing cradle-to-grave deals across our entire platform.

And when you really think of that, we have a 12-person development construction team, we have in-house legal, 3 full-time attorneys, we have about 6-person acquisition team, and then asset management operations, you name it. So, there’s a number of different things we have going on and it allows us to really wrap our arms around deals, to manage risk, to execute on budget on time, to really find unique opportunities across the nation.

Jimmy: You’re doing quite a bit of real estate work across a variety of different property types, different sectors. Today we’re going to be specifically diving into cold storage. I’m really looking forward to that conversation. But before we get going there, I wanted to zoom out and discuss the view from 30,000ft, seeing how Saxum… I think Saxum and you, Chad, are leaders in the commercial real estate industry. What are some of the most powerful trends that you see playing out over the next few years across that commercial real estate landscape?

Chad: Sure thing. I think the commercial real estate market is…again, all markets go in cycles. For anyone that’s been in the market at least 15 years, you’d have lived through the Great Recession back in ’08, ’09, and ’10, what have you. And one thing about real estate that is interesting, a lot of people are talking about now is real estate is a lagging asset class. And by lagging, that means that you can’t sell it by pushing a button. It takes time. And asset classes that are more illiquid because of that reason, they typically take longer to reprice.

So, while you see that the stock market has been volatile, and especially more the rates market has been very volatile, real estate is feeling those movements. But at the same time, it usually takes longer to play out. So, just to give a data point, real estate didn’t really bottom out to 2010 and ’11 back again 13, 14 years ago. And the stock market, the S&P 500, actually hit a bottom on March 9th, 2009. And I remember the exact date because it was actually my birthday. It was 667, which is crazy to think of when we’re in the 4,000 range now. That’s how beat up the market got.

So, it is a very unique thing to keep mind of. And I would say it feels like commercial real estate is more in the news these days than it was 15 years ago. And I think when you look at that, it’s been mostly focused on the moving rates. We have had the largest rate move in the last 20 years. And as you know, almost all investments in private equity deal with leverage. So, when you look at leverage, rates is an important component.

So, I would say, in general, from what we’ve seen, the lending markets have been definitely more difficult than they’ve been in over a decade for almost most deals. When we’re talking to equity, it’s as important that the debt is lined up already before equity is really looking to commit on some of these deals. And this isn’t anything unique to Saxum. Any sponsor would tell you that across the market.

So, I do think that this will be a choppy market over the next year to 18 months in general. With volatility comes opportunity, obviously. I think investors out there, you know, when you’re looking at opportunities in real estate, a lot of pain I think will come from a lot of these larger funds that were buying stabilized assets at extremely low cap rates, and then not locking in fixed rate debt, and now those are upside down. So, we’ve heard a lot about that, and it’s not uncommon in terms of giving some redemptions to some of the bigger players what’s going on there. So, that is one thing that will play out over time.

But on our standpoint, which has been healthy is our portfolio has been, in general, fairly clean because a lot of our deals are development deals which are not arguably delivered right now. We have some deals that are coming up, and most of the deals that are coming up are typically multifamily deals or industrial assets. And that’d be the last point I really make which is just more big picture. Any investor that’s joining the WealthChannel, that’s watching this, that’s really trying to figure out and navigate this crisis, the way you have to think about investments now is what assets can push along price increases basically to the end-user or to consumers? Right?

So, when you really think of that, and, again, I’m not an expert on the stock market but I do believe one of the reasons why the stock market has held in where it is is stock market is partially potentially provides protection against inflation as good companies could pass along costs to consumers. So that is one of the reasons why I think we’re in an inflationary market environment, which we are. I think that that’s likely to stay over the medium term, which I think most people do, regardless of what the Fed does.

And I do think we put in a high in inflation but I don’t think we’re gonna drop back to sub 2% on PCE anytime soon. Those are assets you wanna look at. And when you look at that, the most simple thing, again, this is what we do, at Saxum, we do it on purpose because it’s fundamentally driven is we invest in housing and industrial because going into COVID, Class A multifamily and industrial, we’re by far the two best performers in commercial real estate. Coming out of COVID, it’s the same deal. So, these are asset classes that are very either supply chain-driven, mission-critical, or with high utility, or again extremely high utility where people have to live somewhere in terms of rentals.

And as you know, Fed funds and rates have a positive correlation to actual rents in cases, not when they go up to… Inflation at 15%, 20% is a whole different story. But if you’re a potential homeowner, you’re now starting at 7% mortgage rates versus potentially renting. So, that equation does matter versus buy versus rent. So, we’ve seen large upticks in Class A rents over the last couple of years, in general, multiple double-digit type increase. And again, back to my point before, those are assets where while cap rates might be higher, while construction costs might be higher, a good portion of that could be offset and potentially more based on the ability to move rents, which drives NOI higher.

Jimmy: All great thoughts. And speaking of supply chain critical, you mentioned that term in your previous response a moment ago. Let’s shift our focus now for the rest of the episode to cold storage, because I think we’ve talked about multifamily plenty on this podcast recently, but we haven’t talked a lot about cold storage. I wanna hear your thoughts on it, Chad, today. First of all, how did you begin to look into the cold storage industry?

Chad: Yeah. So, really, Saxum’s involvement on the real estate side in cold storage is really at the heart of how Saxum was formed. The company has always been an entrepreneurial company. We’ve always looked for unique trends that maybe people are not seeing undervalued asset classes, ways to really extract and create unique, risk-adjusted returns.

So, through that process, again, being founded originally in Jersey before we opened our Austin office, industrial has been one of the largest asset classes in Jersey for a long time. It’s not a hidden secret, and we had always known that. We always thought it was interesting, but we never played in the space at the time because we had no edge. And we don’t do things when we don’t have an edge. And you’re dealing with the Prologis and the Dukes of the world. Very large companies, publicly trade, much lower cost of capital than we have. It’s hard to beat them. And if you do on an asset, you’re probably overpaying. And we don’t play that game either.

So, for us, when we started to look at ways to get in industrial, and as we did homework and just looked for interesting ideas, and similar, like you mentioned earlier, on Opportunity Zones, we fell across that, something that came along our way. We did a lot of homework. We’ve done 10-odd deals to date. So, again, not too different from Opportunity Zones. When we started to look at cold storage, in general, we just thought it was almost… It was very surprising to us how fragmented and untapped an asset class it was.

And to really understand it is when you look at cold storage, cold storage represents less than 2% of all industrial assets. So, if you wanna talk about a niche play in industrial, it is the play in industrial. It’s not even debatable. And there’s a number of reasons why that happens. And when you dig in from a real estate lens, you start to peel the onion back, the average age of a cold storage building is 42 years old. So, we’re talking old buildings, low clear heights, a lot of inefficiencies. These are triple net leases, which means a number of those expenses are pushed onto tenants.

Well, if you have an old building with beat-up insulation, cracks, you can think about a number of inefficiencies. If you’re a tenant, a lot of that gets pushed onto you in some cases. So, it was just shocking to us that this had not been built out. And one of the main reasons for that is arguably twofold. First off, the cost of cold storage typically is at least 50% to double of dry.

And as I mentioned, if you’re a big company, a publicly traded industrial company, the low-hanging fruit is to build dry industrial buildings, 9 months build, millions and millions of square feet, 98% of the market. No problem. The harder trade is to roll up your sleeves and dig into a market like cold storage, which costs double the cost of, in general, 50% to double the cost of dry. It’s difficult to build. You have very complicated refrigeration systems, heavy insulation. It’s very unique and it takes more time to build. So, you’re not realizing potential promotes as fast as maybe on other deals.

Again, that’s what something Saxum does, is we look at unique ways to extract value. We’re willing to put in more time and work if it makes sense. So, that was something that was really interesting to us. The other thing is the supply. The vacancy rates in cold storage are sub 2%. And that was really unique to us because when you look at it, there wasn’t a ton of supply of cold storage going back to pre-COVID when we started to look at this.

So, when you look at a lot of developments in cold storage, typically in the past have been built to suites. And what that means is a company needs space, they’re not developers, they don’t wanna build the building. They might not only wanna own the building, they might sign a lease, pre-lease on a building, and they want a developer to build it. When that happens, there’s no supply because the building is automatically put away. So, that’s another thing that we thought was just unique. Very limited supply, very low vacancy rates, very arcane, fragmented business.

And when we start to look at this, I like to say we’re amazing investors. I think we’re pretty good, but we could always get better every day like anyone. But better to be a little lucky than good. We started to look at cold storage pre-COVID. And there’s a lot of money, more in quarterbacks out there now that are now looking at it. But we really built the second fully 100% spec development in the nation to be built, which we broke around on before COVID in Fort Worth market. So, yeah. That’s how we got turned on the sector and really kind of we’re off to the races after that.

Jimmy: So, you’re in the right place at the right time. And COVID accelerated the demand for cold storage. What do you see as the primary demand and supply drivers that are affecting this industry?

Chad: Yeah. And again, when I talk to our investors, I do think sometimes the best investments out there are sometimes the easiest to understand. And that’s sometimes why they’re overlooked. And when we really dug back into the fundamentals of why you wanna invest in something, so the fundamentals, the demand side equation, again, it’s almost very obvious, right? When we looked, again, pre-COVID, we thought this made sense to build the second 100% spec building to be done in the nation, which is a 4,000-square-foot building. And that was purely off the fact that when you look at it, the asset class was very old, as we said, right? So, there’s a lot of arcane buildings and there’s limited supply. But when we looked at the demand, it was just so interesting. And from that…

Again, Amazon has been around for… We’re talking 20 years plus at this point. e-commerce is not something that’s not understood at this time. I still think the numbers are extremely low, even for Amazon, of what e-commerce is, of what it will be over time. When you look at actual perishable food demand pre-COVID, about 20% of consumers ordered food online. And I’m not talking about restaurants, I’m talking about groceries. So, again, we thought at 20%, with some healthy increases, there’d be a tremendous amount of potential demand from that alone. And then in addition to that, what was really interesting on the demand side was the fact of this entire health movement in our country, and not just the country, the world, right? I grew up in the ’80s, and in the 80s, God knows what was in some of the food that I ate when you look at food like Pop-Tarts and what have you. But when you look at it now…

Jimmy: Also, the food pyramid was telling us to eat like 12 servings of grains every day, or something ridiculous like that too, right?

Chad: Exactly. Heavy on pasta.

Jimmy: Yeah, exactly.

Chad: Yeah, I got some Italian roots to myself. There’s a lot of pasta going around at our household. Exactly. So, when you look at that now, it’s almost commonplace to say everyone wants their kids in their family to have healthier food and live longer lives. And what that means is most consumers don’t want food that lives on a shelf for over six months. And what does that mean? Well, it means something very simple. It means that you have to remove a number of the preservatives that allow it to live that long on a shelf. And when you do that, it means that, well, food doesn’t last as long. So, the only way for this food supply chain to basically manage that is to chill or freeze the food, period. There’s no debates.

So, when we looked at that it just…again, very fundamental drivers on the demand side of the equation. And I would tell you, again, better to be lucky than good. That consumer number of online sales now is 70% of consumers order perishable food online, in some facet. So, we never expected that, again, to happen that quickly. COVID just exploded and added a number of tailwinds to the sector, right? So, that’s that.

And then on the supply side, and I talked about a little bit earlier, given how low the vacancies are, sub 2%, you have this very arcane national network of older buildings that really are out there. You know, in our view, again, we’re developers and our head of construction has numbers of years of experience building cold storage. We looked at as ability as, “Hey, we think we could build this. We think we can build it on budget, on time, and we think there will be a lot of demand for new buildings.” So, to bring a full circle, that’s why we felt comfortable breaking ground on 100% spec building pre-COVID. And now the market has become even more interesting since then.

Jimmy: You had some tailwinds at your back pre-COVID and now it’s really accelerated with the behavioral changes that consumers have undertaken in response to the pandemic. So, I’m imagining these cold storage facilities, there’s perishable food, grocery-type stuff, maybe thinking maybe prescription medication that needs to be kept cold or frozen. What else is there in these facilities? Who are the tenants that are most active in this space?

Chad: Yeah, it’s been fascinating. I always kind of joke about it. I love food. Just personally, I love thinking of food and different types of food. And growing up, I never would wanna work at a restaurant. I do much other different manual labor type jobs because I didn’t wanna see how they made the food. But I managed to work my way into the food business on the storage side, which is exciting. So, it’s been really fascinating to learn about it. And like the food supply chain, people in our world, frankly, we just take for granted the fact that you could go to a store and get a fresh avocado. Like, 20, 30 years ago, that was not like that.

When you think of seasonal fruits and vegetables, it’s just…again, things that we’ve been spoiled with over time that are very complex, they’re very driven. There’s so much science and just technology behind it that we all just take for granted in our daily lives. And when you really start to look at it from a logistics lens, it is just really wild. So, I guess before I describe some of those specific companies, I think one way I wanna answer the question to start is, there’s two type of really users when you think of cold storage.

So, again, Saxum builds the real estate where we build cold storage buildings, right? On the real estate side, for obviously owners of buildings, it’s really important to us to know who those tenants are. And really the type of tenants that exist are twofold. There’s direct users and then there’s 3PLs, which are called third-party logistics providers. When you think of direct users, think of it as this, think of the Walmarts, the Targets of the world, potentially, like, the Heinzes or the Conagras, big massive food companies that are out there, right? And some of these companies, they arguably are logistics companies. They own a bunch of their own warehouses. They run their own warehouses. They know what they’re doing.

In some cases, though, like Amazon, for example, some markets, they grow so fast they just run out of space, and they can even wait for 9 to 12 months to build another building. So, they lease space. And if Saxum owns a building and pretend Amazon runs out of space in the market and they wanna lease space, they come to us, they sign a lease, and then they run the warehouse themselves. Again, we do nothing. They know how to run the warehouse. They know how to man the warehouse. And again, they’re logistics experts, period. That’s about 20% of the tenants in the market. Big, large, massive companies that a lot of us would know that have some type of need for refrigeration.

On the other 80% side of the equation, when you think of these 3PLs, really when you think of third-party logistics provider, think of like coworking. If we have a 4,000-square-foot building, you might have a 3PL, right, that would lease, say, 200,000 square foot of the space. When you convert that to pallet positions, which is the link-up for, obviously, logistics, it’s about 25,000 pallet positions, give or take. So, we might have a 3PL that says, “Hey, we wanna lease half of your building.” And what they do is they make money two ways, they make money typically off storage, and that means they lease from us at X price per pallet, which they then release at a higher price. Just, again, like coworking, not too dissimilar.

But then there’s a larger amount of costs and fees, which is interesting, especially specific to food when it comes to handling, or it might be blast freezing, or case picking, or cross-docking, all these unique things that might be specific to food, quality control of the food. Is it at the right temperatures? Are we checking that? All those things, right? And there’s all those services that arguably have to happen. And that’s what a 3PL does, right?

So, 3PL, in this example I gave you of 25,000 pallets, they might have 100 clients that need 250 pallets of storage annually. And those pallets are in and out, right, there’s movement and there’s obviously velocity and movement of those pallets, but those are, like, a way to think of those customers. And to give even a further example to help everyone out there learning and listening to this, and I’ll use ice cream because I love ice cream. Ice cream is basically stored at -⁠20 degrees, produce is 38 degrees to give you an idea of the bandwidth of these facilities.

You might be… Pretend you’re an ice cream company franchise that has 20 retail stores. All you might care about is every other Wednesday you want a pallet of ice cream to show up at every facility, and that’s all you care about. You don’t wanna lease an industrial warehouse. You don’t wanna own a warehouse. You don’t wanna operate a warehouse. And by the way, you might not even wanna deal with the transportation of your goods from the warehouse to your 20 retail stores. That’s exactly what a 3PL does.

And there’s thousands, millions, arguably, of these ice cream companies that wanna outsource the logistics because that’s not their daily blocking and tackling. And that’s where we’ve been involved as well on the 3PLs side of the equation. When you think of other companies, to answer your initial question, when you dig in, French fry companies, protein companies, protein could be chicken, what have you, seafood, you name it, produce companies, pet food companies are very interesting as well, that need to store the food, which basically it might be a distributor that’s storing food that they might sell to a processor that chops up all the meat and then refines it to their end product. So, there’s all these unique supply chains within the food market which are just fascinating.

And one thing to just bifurcate this, I do get questions a lot about vaccines. Do we store vaccines, just given that we’re coming out of a pandemic? And just one unique thing to note about that is most pharma companies will basically store that themselves. It becomes difficult as well because a lot of those vaccines have to be stored really at over -⁠100 degrees. So, the refrigerant system for -⁠100 and lower is different than a refrigerant system that could go -⁠20 to 38. So, another way to say that is if I’m a developer building specs-calculated space and it’s not a built-to-suit for XYZ pharma company, it’s pretty risky you have a very low customer audience base to lease that space. So, that’s not typically something that we focus on.

Jimmy: You’re doing food and only food, basically, is that right?

Chad: Yeah, I’d say heavy on food, human, animals food, the pet food companies, you name it. I mean, heck, some of these pet food, the way people treat their animals these days, I think humans could eat some of this pet food, frankly.

Jimmy: Probably, yeah.

Chad: That’s a whole ‘nother story, but how healthy the whole humanization of animals, which… I have two dogs. I understand it and get it, but it’s a real thing. It’s very interesting.

Jimmy: Yeah, I’ll bet. Well, we won’t go down that rabbit hole any further, but maybe save it for next time. Well, this incredible market opportunity here with cold storage, a lot of tailwinds. Has it gotten really competitive? What does your competitive landscape look like across this industry?

Chad: Yeah, when you really look at it, which is what’s really interesting is that it is a growth market, right? And I think, again, as investors, A, you wanna look at products where there’s pricing power, prices could be passed along to the end user. That’s critical. But you also wanna look for markets that are actually growing, and there’s increasing demand for the overall universe. And when you look at it, it is extremely interesting. There’s about 350 million square feet if you look at actual in-place product in cold storage. We expect that to really grow to over 500 million over the next decade, 500 million square feet.

So, like, these numbers, this is a growth market. There’s a lot of tailwinds for the reasons we already talked about before into the space. What becomes so interesting is this, remember I said about 20% of the market are these end users, the big large logistic, Amazon, Target-type companies. And again, they kind of do their own thing, right? So, if you put them aside for a second, you basically say, “Well, what’s this 80% look like? What’s this 3PL market look like?” And when you start to look at that, then it becomes even more fascinating.

And by that is, there’s basically three main players that dominate that entire space on a national level and pretty close to a global level. It’s a little wider than that, but there’s three companies Lineage, Americold, and U.S. Cold. Americold, publicly traded. The ticker’s COLD. Anyone can look it up. Lineage is a private company. Lineage is the largest player in the world in cold storage 3PL, largest. Americold is number two. So, they control of that 80% of the tenants, right? So, 20% direct, 80% 3PLs. Of that 80%, those 3 companies represent about 85% of the space in activity. So, it’s extremely interesting.

And my analogy would be this is, when you think about it is it’s almost like the car dealership market on a national level. And I’ll explain. If you think of car dealership, there are a number of auto REITs, companies that…real estate investment trusts, separate trusts, they go and buy car dealerships from families, typically, and they do sales leasebacks. They give them 20-year leases. The family gets to take out a bunch of money and then the REIT owns the real estate. So, there is a business for that, but it still is very niche. Most car dealerships, when you go into a national scale, these are family-run businesses that are very specific to the geography that they’re in. And when you look at cold storage, it’s similar.

So, if you’re not the big three, arguably, those big three companies, you’re talking…not to say a mom-and-pop, but a family that might own three to four cold storage buildings in the Southeast or the Northwest, and that’s it.

Jimmy: And that’s 15% of that 80% piece of the pie that isn’t the really big players, the Targets, the Walmarts, etc., right?

Chad: It’s wild, yes. Yes. And furthermore, to take it a step further, when you think of it, most big companies, like, if you’re an end company that wants to hire a 3PL to outsource your logistics and you’re national, you don’t wanna deal with four different mom-and-pops in different geographies in the United States that have different technologies, and different systems, and different platforms. That’s a headache, right? You are looking for national players that are in the space that could really make an impact. And that’s the thing. If you could create a national network of cold storage assets, you’re immediately unique. And that’s what’s been pretty wild. And what’s happened there is the big three, again, the way they grow is they do develop some of their own assets, but frankly, Saxum has more development. Again, Saxum, we’re not the size of these guys by any means. Again, on the real estate side, we develop as many assets a year as arguably they do on a square footage basis.

So, a lot of their growth… Again, Americold is publicly traded. That has to be beholden to shareholders. How do you grow revenues? Well, you grow revenues by acquiring other assets. Because, like I said, typically cold storage hasn’t been a spec asset class, which, again, like on the dry front, there’s not a bunch of developers just building a spec asset class. For the reasons that I said, a lot of space is customized. It wants to be built for specific users. It doesn’t exist out there. So, the way they’ve driven growth over time is buying 3PL that have gotten larger over time, right? And when a company gets big enough to get purchased, one of those three typically buys up.

And it’s created this unique dynamic in the market because, remember what I said earlier, the average age of a cold storage building is 42 years old. So, if you’re a tenant and 85% of the place you could rent space from is likely 42 years old, that’s not a great proposition longer term. And again, when you look at those big three, I’m not speaking to anyone specifically, but COVID created a lot of pricing issues with cost of labor, what have you, and there’s a lot of price increases that went across the market. And I think there are a number of customers out there that had large price increases, probably more than they thought that were saying, “Wow, that hurt. I have all my eggs in one supply chain basket. We got to figure out ways to diversify this, from a supply chain logistics standpoint, just to protect our own businesses from potential other increases.” So, there’s this very unique opportunity set to play on the 3PLs side of the cold storage space.

Jimmy: So, are you guys partnering with 3PLs? Are they leasing space from you, or are you becoming your own 3PL? Help me understand what’s going on there.

Chad: Yeah. So, what we’re doing on the Saxum side is, it’s really one main thing. Again, Saxum is a commercial real estate investment development company as I described earlier. Our goal really is to build a national network of new construction, highly efficient cold storage assets to really address this widespread shortage in the cold chain that’s out there. And we feel comfortable, A, from a spec side that there is enough demand to actually fill these assets over time given some of the demand variables, you know, I mentioned to you.

But at the same time, which has been unique is we do have a sister company completely separate from Saxum, that’s named Arcadia Cold Storage & Logistics. And Arcadia is a 3PL, and it’s really unique. And that company is run by a guy named Chris Hughes. Chris Hughes is very well in the cold storage universe. He was at Americold earlier in his career, again, number two player in the world. And what he did was, over time, he worked. He was a Chief Commercial Officer at Americold for a number of years, so a very high-ranking guy there.

He left and he started his own 3PL about a decade ago. That company is a company called Agro Merchants. Agro Merchants was a roll-up strategy, no different than the big three, like I’ve described, where they went out and bought a number of undervalued assets, both nationally and actually globally as well. They had a number of assets in Latin America and Europe, which is unique. And they rolled up a portfolio and they actually sold it back to Americold at scale for $1.7 billion at the end of 2020.

So, as you see, there’s this roll-up trade that basically keeps happening. So, Chris Hughes has put together a first-class team of operators, seasoned veterans in the cold storage universe that runs Arcadia Cold Storage & Logistics. It’s own completely separate company. He’s been doing an amazing job there. And we have a number of facilities that are public, about six so far that are in construction. I think five of the six are gonna be delivered this year. And again, Saxum is building a number of these buildings.

So, that is part of some of the connections there is the ability to understand that a building can be built on budget, on time. That building I mentioned that we built pre-COVID, we broke ground on NDFW second spec building to really be building the nation. We built that on budget, on time during COVID, which when you deal with steel, given what happened with steel prices, is almost unheard of. So, again, a huge shout out to our development construction team that really executed that led by Kieran Flanagan on our side.

But that’s what’s really been unique, and it’s been fun on the Saxum side to watch these guys operate because that’s not our daily business. We’re real estate developers. We know how to build buildings on budget, on time, and that’s what we do. That’s our lane, and we stick there. But to see a company like Arcadia grow with Chris Hughes leading the charge there, it’s just been fascinating. And there’s been a lot of interest from a lot of these potential tenants, again, that are out there and looking to diversify the supply chain. But not even just that, there’s a lot of tenants that actually just need new space that might not even have a provider now, like I said, due to a lot of the demand forces that are at play that are growing in this sector. So, again, it’s been really unique to watch these guys operate and just really see how that side of the business really has played out over time.

Jimmy: Got it. I’ll ask you a little bit more about Arcadia in a few minutes. But bringing it back to Saxum, you just mentioned you’re a real estate development firm. Cold storage isn’t all that you do. How does this cold storage strategy fit into your overall strategy as a real estate investor at Saxum?

Chad: Yeah. So, again, it is a mission-critical strategy for us. Again, two food groups are housing in industrial, to mention earlier, of the industrial side of the business. It’s definitely half of that business by far. Quietly, we are the largest spec developer of cold storage in the nation. We don’t really boast about that. We stick in our lane and just keep our head down and work hard. But we have over 2.5 million square feet plus of development right now across multiple assets, not just those first 6, you know, approaching close to 9 at the moment, frankly. Again, a number of those are confidential, but we are very active in the space. We’re very focused on the space.

And again, not just deals that maybe might work, and again, might work where if a deal fits for Arcadia, where that could fit them as a tenant. Again, that’s their decision. It’s a completely separate entity. There’s opportunities there, but we are also investigating also opportunities to do built-to-suites for other tenants that we might be speaking to on the directly site. Because, again, a number of these assets, while we might lease space to a 3PL like in Arcadia, we are taking speculative risks sometimes in these assets to the tune of 100, 000 to 200,000 square feet, where we’re out there directly looking for, like I mentioned, like these Amazons or Targets that might need some extra space, right?

So, sometimes we might come across clients in that space that say, “Hey, that’s great, you got 100,000 square feet. I need 300,000. You guys are obviously capable to build. Do you wanna build this for me?” So, we are multifaceted to able to do that on multiple fronts. So, it is a big focus for us. Again, it’s very straightforward of why the demand is there. We love to stick in lanes where the demand is obvious. And for our investors, typically on the real estate side, the way to invest is we have a number of unique GP investment vehicles, where we’re raising… You know, Saxum is…over time we’ve raised a couple of $100 million of ultra-high-net-worth capital, which is similar to, obviously, audience that you speak to actively. But we’ve raised about $300 million to $400 million of institutional capital as well.

So, one thing we do that is unique, provide opportunities for ultra-high-net-worth investors to invest on the GP side of some of our investments. And a number of those are actually in some of these cold storage deals. Not all of them, but ones where there’s opportunities to have a GP component, we will look at that. And we have a GP fund that we’re working on right now that basically partakes in that. You know, that’s how we look at it, and that’s how we look at giving our investors exposure on the cold storage front.

Jimmy: Where does cold storage fit typically? Would you say on the risk-return spectrum? What are some of the risks associated with cold storage? How do you assess those risks? And what kind of returns are you targeting over what investment period?

Chad: Sure thing. So, typically, again, you’re talking development returns, and it depends. Time horizon is important on that. But you’re really trying to target returns really between the two, two-and-a-half X based on whole periods, which you’re getting mid to high teams type IRRs. Again, these are development deals. So, that’s not arguably too different on the real estate side, where if I was doing a development multifamily deal thing, high teams, low 20s, potentially IRRs on the project level, and then net to investors not too far from there, similar. So, that’s really how we look at it on the real estate side. Again, we’re building new development construction. Again, it’s typically pretty straightforward.

When you think of risk, that’s where it really also becomes interesting, because, again, as an investor, as an astute investor, you never wanna look at an absolute return to judge investments. That’s what a Sharpe ratio is, is when you judge an investment based on its risk-adjusted return, what’s the risk that asset could go to zero versus a five X versus a two X? Right? So, those are things investors should always look at.

And one of the things, and I think I missed this point earlier when we started to really look at cold storage or why we liked it, is when you start to look at cold storage as an asset class, very low vacancy rates, partially driven because of low supply, but also demand. But when you look at the 3PLs side and you understand those climb mixes… During COVID, if you go back to even Americold, Lineage, Arcadia, companies like Agro Merchants when Chris Hughes was running Agro Merchants, they had almost zero layoffs during the Great Recession. Zero. Those buildings stayed full. Now, where there may be some pricing pressures here or there, sure, like any business, but in general, they kept all their occupancies. Pricing was fairly stable.

And the reason why that happened is just a mix of the product they were storing just changed some. And to explain that a little more to our audience, think of when a recession happens, less people go out to eat. They order more food from home, right? And when you start to think of dynamics like that, it changes the type of food and the amount of food that needs to be stored based on the actual distributors that’s fulfilling that demand. So, cold storage is, I would argue, one of the most recession-resistant businesses out there to play in from the demand and supply reasons we mentioned, but also because of the ability to push along pricing power.

Jimmy: So, we’re running low on time here. I think we’re winding down the interview, but I wanted to talk more about that third-party logistics firm that you mentioned that you’re partnering with, Arcadia. What’s the vision for Arcadia’s growth and market footprint going forward here?

Chad: Sure thing. I mean, Arcadia… Again, Chris Hughes has done this before. He’s put together an amazing team to basically build a first-class national, multi-nodal logistics company that’s at the heart of the supply chain that’s really focused on really client services, putting the client first, very in touch. We’re not trying to become some massive conglomerate. It’s really to build double-digit facilities and to lease. Again, Arcadia doesn’t own assets, they’re really tenants, but to really lease these assets on a national scale. And what’s really unique, it’s to be one of the only national networks of new construction. And the industrial term for that is greenfield, greenfield buildings on a national scale. So, again, Chris Hughes drives really the strategy on that side of the equation. That is their strategy. That is their focus. They’re heavily involved in procuring existing relationships and creating new ones on a national scale.

And really to just quantify for you, back to my car dealership, the family office example is this, Arcadia, between the leases that we’re aware that they’re signing, they will have about 1.5 million square feet of leasehold interest by Q1 of next year. Just with 1.5 million square feet of leasehold interest, Arcadia will be the 7th largest operator of cold storage as a 3PL in the nation. And that’s what’s wild, right? Because you’re talking about, again, the 85%, the big 3. It doesn’t take much to be in the top 10.

And to me, that kind of just blows my mind, because we’re talking about food. Food is one of the most mission-critical assets in our nation with the highest utility you could think of next to housing. So, how can that asset class not be more tapped, arguably? Right? And again, the analogy is this used car dealership, a large amount of that market are these smaller assets over time. So, it is so unique when you really look at the opportunity set to really institutionalize the cold chain through best-in-class assets with the best-in-class management team. So, that’s really the vision for Arcadia is to grow to a national platform and really execute on all levels here. So, it’s really unique.

Jimmy: Well, Chad, this has been amazing. Really great learning about the cold storage industry a lot more during today’s episode, and great learning about what Saxum is doing in that industry. Thanks so much for sharing your insights. Before we go, where can our audience of high-net-worth investors and advisors go to learn more about you and Saxum?

Chad: Sure. Saxum Real Estate, just go right to our website, it’s And then Arcadia, same thing, just look up You could see Arcadia’s existing portfolios there. You could see all the leadership and management of Arcadia, including Chris Hughes, is all there. You could take a look at some of these buildings, which again are just fascinating. Again, one last thing I’d say to quantify that. If you took about a 400,000-square-foot building and you really look at that, it’s like 6 to 7 football fields of area. So, again, when you think of the supply chain and how mission-critical is to us as a country, again, it’s extremely interesting.

Jimmy: Yeah, it’s a big building, and a lot more of them need to be built over the next few years, it sounds like. I’ll be sure to link to the Arcadia website and to Saxum’s Real Estate website as well in the show notes, which will be available on our website as always at We’ll have links to all the resources that Chad and I discussed on today’s show. And please be sure to subscribe to us on YouTube or your favorite podcast listening platform to always get the latest episodes. Chad, again, thanks so much for joining me today. Really appreciate your time.

Chad: Appreciate you, Jimmy. Thank you.