The demand for last-mile industrial space located in population centers is growing rapidly.

Chris Powers, founder of real estate private equity firm Fort Capital, joins the show to discuss his success as a real estate entrepreneur and why he is bullish on infill Class B industrial real estate.

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Episode Highlights

• The story of Chris’s career, how he got his start, and how his real estate investing grew into Fort Capital.
• Class B industrial market fundamentals, and how it differs from Class A industrial.
• Why Fort Capital niched down into Class B industrial in 2016.
• Where Chris believes we currently are in the real estate market cycle.
• Why Chris is skeptical of a widespread recession that many are predicting is due to occur in the next year.

Guest: Chris Powers, Fort Capital

• Chris Powers on LinkedIn
• Chris Powers on Twitter
• Fort Capital
• The Fort Podcast

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 show. I’m Jimmy Atkinson. My guest today joins us from right down the road here in Fort Worth, Texas. He is a serial entrepreneur, founder of real estate private equity firm Fort Capital, and he’s the host of The Fort podcast. Chris Powers. Welcome to the show, thanks for joining me today.

Chris: Thanks so much for having me, it’s a pleasure to be here this morning.

Jimmy: Absolutely. It’s always great when I get to interview a fellow podcast host. I’m going to ask you a little bit more about your podcast later in today’s episode. But first, I want to talk about your real estate private equity firm Fort Capital, which specializes in acquiring and managing income-producing, institutional-quality Class B industrial properties here in Texas, but also throughout a few other states in the southeast region. I should mention these are non-Opportunity Zone properties. But perhaps some of my audience of high-net-worth investors and advisors, Chris, may be familiar with you. But for those who aren’t, can you tell us a little bit about who you are and what Fort Capital does?

Chris: Yeah. So, proud to be here in Fort Worth, Texas. I was born and raised in El Paso, Texas. I moved here in 2004 to attend TCU. And that year, was fortunate to meet a friend of mine who’s still an amazing friend that taught me how to buy rental properties, student rental properties, my freshman year. This was pre-GFC and we were able to get, you know, loans with very little down and buy rental properties. And so my career really started in 2004, and kind of the body of work that’s taken place has been since then.

So, freshman year, bought some rental properties. Grew that throughout college, and really have been building this company, you know, since then. And today, where we stand, as you kind of mentioned, we’re a team of 52 folks. We’ve built an incredible team. We have offices in DFW. Dallas, Fort Worth, and Houston. We own and operate about 7.5 million square feet of Class B shallow bay industrial in major markets across Texas and throughout the Sun Belt. We are, we say, fully vertically integrated. Which means that we acquire, finance, raise our own capital, property manage, construction manage, really service, and really work as an operator and not just an investor. And, you know, we say our mission at Fort is to be the best real estate operator in the world, and that is kind of the long-term goal of what we’re doing.

And so we started buying in 2016 industrial. Before that, we had done lots of different development projects all across the board, which I’m happy to talk about. But really, since 2016, we’ve been a one-trick pony, really focused on buying great infill Class B industrial real estate.

Jimmy: Yeah, let’s talk Class B industrial real estate and your investment thesis in a minute, but I’m curious to hear a little bit more about how you got your start. You mentioned you started investing in real estate with one of your friends at TCU in about 2004 or so. By the way, I live right next to TCU, I’m just southwest of the campus. We can walk to the football stadium, walk to the baseball stadium.

Chris: Okay.

Jimmy: I’m very familiar with the neighborhood. I don’t know how many of my listeners might be familiar, because, you know, I have a national audience. Maybe a couple people in Fort Worth here know that neighborhood. But tell me a little bit more about your background, because you’ve become quite successful now with Fort Capital in the ensuing, what, about 20 years or so, I guess it’s been. But, you know, tell me more about that time in your life when you first became an entrepreneur and a real estate investor. What were some of the first properties that you started working on here in the TCU area?

Chris: Yeah, it’s a great question. So, my entrepreneur career probably started in high school. Had a business selling golf clubs on eBay. Which, to be fair, in 2000, late ’90s, early 2000s, that was more of a novel idea then. eBay was kind of not what we know it today. And I was a high school golfer and a junior golfer, and made money doing that. Also had a lawn care business and would just mow lawns. And these weren’t big businesses, but they taught me business. And they taught me how to make money.

And so when I got to TCU in 2004, you know, TCU is an amazing place. And I…let’s just say I didn’t have the discretionary disposable income that maybe other people there did have. And I wanted to be able to do things, like really trivial things probably, but be able to go out at night, be able to go on spring break, things of that nature. And so I was like, “How am I going to make enough money to do this?”

And at the same time in the business school. And I think the lesson here is, like, understanding the opportunities that are in front of you and maybe taking advantage of them. This was 2004. This is pre-Great Financial Crisis. Anybody that remembers back then, lenders were basically giving out a lot of zero-down loans or no-credit loans. There was a lender called Countrywide that was probably the antithesis of this. And I was a 17-year-old, about to be 18-year-old kid, was in the business school, and saw on the front page of the paper the person who had won entrepreneur of the year that year was my really good friend, Adam Blake. And he had won it for buying a lot of rental properties around TCU.

And long story short, ended up finding a way to connect with him and meet him. And he basically taught me… I remember we were at the Chipotle on Hulen, that’s still there. And he basically, in a lunch, gave me the framework for how I could do this. Which was a combination of, like, “Read these books that’ll kind of teach you. Owning a student rental is really not that complicated. And then here’s a lender, and this is kind of the process you’re going to have to go through.”

And so I remember within probably three or four months of that meeting, I had bought my first house over there off of Trail Lake, over there south of the football fields. And it was a three, one and a half. I got a loan for 3% down, and then I got 6% cash back at closing. So, I actually left with cash. And I turned the three, one and a half into a four, two and a half. Was able to convert a living room into a bedroom-bathroom. Leased it out to me and three friends. And that was kind of the start of it. And to be fair…

Jimmy: Did you do all that work yourself?

Chris: I did. I bought it myself, and then I hired a crew to do the actual construction work. And, you know, to be fair, I don’t think at that time I thought, “I’m going to be in the real estate industry forever,” but it was a way to start making cash flow. And the interesting part, and this is probably more the thing that had struck me the most, was once we got it leased, I was able to go back to Countrywide and basically show them I had it leased. What was once $105,000 was now worth $140,000, per their metrics. And you could refinance out cash and keep going.

And so over the course of college, acquired 12 rental units. I had a property management company. I had a college leasing business, I helped kids find property to lease around TCU. And then I graduated in ’08, which was, like, the worst time ever. And to be fair, again, it’s kind of funny looking back. Even at that point, I hadn’t really thought, “This is my career.” I still thought I’d go to Wall Street or go be an investment banker, which was the hot job at the time. And then I graduated.

Jimmy: You were just doing that just to get a little extra beer money, going-out money, for your weekends, right?

Chris: Correct. And to be fair, you know, we did a little bit better than that. I had students that would work for me during the summer, and I had an assistant full-time that helped me with all this throughout college. But for some reason, in my head, I had always kind of planned on… I went to business school, like, “I’m going to go to Wall Street. That’ll be my next thing.” And I graduated at a time where there was no jobs available. I had this business. And it was like, “Okay, well, I’ll just keep working on this for the time being.” And, you know, probably somewhere along the lines, I made a conscious decision, “This is it.” But, like, 20 years later, this is what we’re still doing, just a different version of it.

And so, yeah, it was an amazing experience. I think the lessons learned were, like, some of the opportunities I had then aren’t available today. But that’s always the case in life, there’s different opportunities that’s presented. I’ve fallen in love with the industry, it’s been so good to me. I’ve met so many great people and had a lot of great experience, and look forward to what we’re going to do. It’s an industry that’s going to be around forever. I don’t think real estate is going anywhere, it’s the largest industry in the world.

And so, yeah, it’s now become my career and something that’s, like I said, been really good to me. And we can talk about any part of that, but that’s kind of how it started.

Jimmy: That’s great. And I can confirm that that Chipotle on Hulen is still here. I’ll admit, I probably go there about two or three times a month to get some lunch, right down the road for me. So, it’s as tasty as ever. Hey, do you remember any of those books that your friend recommended to you?

Chris: That’s a great question. Not really. They weren’t… It was basically…

Jimmy: And this was 20 years ago. So, yeah.

Chris: Yeah. And it was basically just, like, how a rental property works. I mean, it was so simple of, like, “This is rent. This is… You’re going to pay property taxes, insurance, maintenance. Here’s how to fight property taxes.” It was a very basic book, but, no, I do not remember the name of it.

Jimmy: It might have been Investment Properties For Dummies or something.

Chris: Probably. Because I was a dummy. I needed every bit of it.

Jimmy: And when did you start Fort Capital? When did that come together?

Chris: So, graduated, had a company called Powers & Company. And then I brought on a partner and we called it Powers & Curtis. And then my partner and I split. Great guy, still good friends with him today. And after we split in 2012, I renamed the company Fort Capital. And so since 2012, I guess that’s when we were legally bound. Yeah. So, I guess you could say Fort Capital was born in 2012. For me, it’s kind of been one continuous body of work, with a few partners and name changes along the way. But that was the name that stuck. And now we’re 11 years into it and I don’t think it’s going to change again, I think we’re…we found the company name and our structure.

Jimmy: So, these days, Fort Capital is focused on Class B industrial, as I mentioned in the intro. When did you make that shift from residential into industrial, and why?

Chris: Yeah. So, graduated in ’08. And there was a period from ’08 to, call it, ’16 where I was building million-dollar spec homes, I was building student housing at TCU, we were buying multifamily properties, we were buying and entitling and flipping land, doing lot development. We were kind of jack of all trades, master of none. If it made money, we were interested in it. But we were basically deal junkies. Working really hard. Making good money, but, like, you kind of have those nights where you’re like, “Man, I’m really working, like, on overdrive.”

And we started having some bigger projects. And this was such a blessing. And I haven’t really talked about capital raising, but I had learned how to raise money. Part of it, had great family and friends from TCU. And then started to meet new investors. And so we would syndicate deals. And so as the deals were getting bigger, it was easy to syndicate on smaller deals if you were raising, you know, half a million bucks for a project or a couple million. But then we started looking at projects that were like $5 million of equity, call it.

And I would go meet with people and they would say, you know, “The project looks good, the terms look good, you’re credible. But I don’t know if you’re going to wake up tomorrow focused on student housing or lot development or, like”… It’s basically just like, “We want to put our money behind somebody that’s really focused on something.” So, “Your townhome project looks great. But if we’re going to give $5 million, we’d rather it be to the guy or girl that only works…that only wakes up every day focused on townhomes.” And it didn’t take me but a few meetings of hearing that to realize, “Oh, wow, okay. I need to now start focusing if we’re going to build a real company here. Or we’re just going to be doing deals all around town.”

And so that was kind of the first thing. Like, “Put that on the shelf. Okay, we need to find something to focus on.” And then ’08 to ’16, I did a lot of development, a lot of new construction. My hat’s off to developers and people in construction all over the country. It is not easy. And it’s actually becoming a lot tougher as time goes by. Projects take longer to entitle. I say a developer is almost like the mayor of a city, it’s almost like being a politician as much it is a deal person. There’s a lot of people that need to be made happy, there’s a lot of hands in the pot. There’s architects and engineers and neighborhood associations and contractors and banks. And you’re kind of wrangling all these people. And you can make a really good living on it, but it’s really tough. It’s hard to scale. And there’s a lot of risks in development that you can’t control.

I can’t control when it rains for two weeks, my concrete guy can’t pour. And all of a sudden now, he’s 60 days out because he went and took other jobs other places. And now I’m sitting waiting for a concrete guy to show up. Oh, and repricing. Concrete went up during that 60 days, so you have to get a rebid. So, I’m giving a tiny example of just things that make it tough.

So, anyway, we also approached it from, like, “Okay, we want to get into things where we’re just acquiring something. We know the day we buy it what we’re in it for and what our cost is to create the value that we want to create.”

And then we just started looking at the world and saying… You know, 2014, 2015, 2016, the word “last mile” was becoming very…you know, more used. It wasn’t… Now, it’s terminology you hear every day, but back then it wasn’t. We really started looking at the world thinking, “Man, industrial is going to be really important. And specifically industrial close to consumers is going to be really important.” And, “Oh, wow, this is an asset class. You can’t really rebuild Class B industrial, especially in the center of the city.” So, that was interesting.

And this all… I skipped a little bit. That thesis started coming together after listening to Sam Zell, who talks very often about not developing new stuff. He would only buy existing stuff. And his whole model was like, “What’s my price to pay and what’s my cost to lease?” I don’t have to worry about all the other stuff. And he would often joke, “50% of the return of a developer is just the satisfaction of building a building.” And I think a lot of that’s true. And developers are amazing. And thank god for them because everything that you’re walking around in today was done by a developer. But we didn’t want to play that game. We wanted it to be more simple.

So, all three of those things, the irony is we picked something that we had never done before, which was buying existing industrial buildings. And we may…we went on a year-end retreat, my partner and I said, “From this day forward, every new deal that we do is going to be Class B industrial. We’ll finish out all our other projects.” And by… So, from ’16 on, that was the case. And by 2019, we had completed all our other projects.

And so really, the last seven years have been nothing but buying and selling industrial. And today, we own about 7.5 million square feet. We’ve bought about 12 million square feet, but we’ve sold off, you know, 4.5, 5 million of that over the last few years. And it’s been the best thing we ever did from our business, was focus on something. You know, industrial has been the right thing to focus on. And I would say we probably get a little more credit, look a little smarter than we were when we made it, but it’s just it’s worked out and, so far, it looks like it’ll keep working out.

Jimmy: So, you realized at one point that you had to pick a niche, any niche, and be focused on that niche. And then the niche that you happen to pick is industrial, specifically Class B industrial. So, give me the bull case, or your investment thesis, on industrial, why industrial. And also, particularly, why here in the Dallas-Fort Worth area.

Chris: So, when you hear “industrial,” you often think about the big warehouses that Amazon’s moving into. And that is industrial. We are not buying that at all. And there’s a great market for that. That’s not what we do. We buy buildings… I joke, “Nobody ever drives by a building that we own and stops and goes, ‘Wow, that’s a beautiful building.'” These are, like, the hidden buildings in America, but they are servicing America’s most basic needs.

And so if you drive all over your city into industrial parks, you’ll see these older one-story buildings that have been around since the ’70s and ’80s. They have smaller tenants in them. Sometimes as small as 1,000 to 2,000 square feet, that have a little office and a warehouse. And they’re built, what we call, infill in the city. Which, when they were built probably back in the ’70s and ’80s, maybe that was the outskirts of town, but now it’s the center of the city.

And so number one was there is a high demand for these buildings. Service providers, contractors, manufacturing, auto, distribution logistics, general warehousing, energy, all of these type of tenants occupy these buildings. The second part of why to buy them in growing metros was, as these population centers are growing, everything I just mentioned is in higher demand. But the thing that was, like, most appealing to us was you cannot rebuild this stuff. You can’t go find 10 to 20 acres in the middle of a high-functioning city that’s on a flat piece of land, that’s priced very cheaply. That even if you could find all that, that cities are going, “Yeah, we really want that to become industrial.” It’s not a great tax base for the city, it’s not highest and best use, they’re ugly buildings. Cities want to see more. So, even if you could find the land, you’re kind of fighting against a city that doesn’t want it. And then construction costs are at such a spot where even if all those things lined up, it really is not economically feasible to build.

Second thing. In almost every asset class, if you do financially better, you leave it. And here’s what I mean by that. If you live in a Class B apartment and you do…you make more money, you move into…maybe you go buy a home or maybe you move into a Class A apartment, or a high-rise or a condo. If you’re in a Class B office and your business does better, you go move into the fancy new Class A office downtown. Even in self-storage. Like if you make more money and have nicer things, you move out of that crappy self-storage building into an air-conditioned self-storage building. But in Class B industrial, if you do financially better, you don’t move to Class A industrial. Class A industrial is a function of your business. So, you would only move in there not because it’s nicer, it’s because “our business requires this type of space now.” So, what you have are tenants that are stickier. That as they do financially better, they just grow within the asset class rather than leave it.

And on that, industrial is a function of your business. So, like, we just went through this pandemic. There was basically two things you need, you needed beds and sheds. And that’s what we said. You needed a place to live, and then industrial buildings to manufacture, store, and distribute product. Retail, hotels, office, everything else became, like, a nice-to-have. We didn’t think that going into the pandemic, but we quickly learned, like, these are the two asset classes we must have to maintain society. Everything else we can kind of do without. But you…it’s not like…you couldn’t go to the warehouse and tell all the warehouse workers, “Hey, take some product off the shelves, take it home with you, and distribute it out of your garage.” Like, the business just stopped working.

So, almost every tenant was deemed essential. Which I hope we never go through another pandemic again, but I just think it taught us…it further shined a spotlight on how important industrial is in society. And so you’re also seeing things like a lot more investment going into, you know, logistics and technology within the warehouse, how to get more products stored in and out, supply chain technology. So, there’s just a lot more emphasis that truly accrues to the building owner over time. Like as tenants do better and can get more money out of their space, landlords can charge higher rent. And so there’s like $30, $40, $50 billion a year of investment going into kind of this technology around industrial spaces. And ultimately, that accrues. The landlord benefits from that, as well. So, that’s another reason.

That super predictable capex. These tenants do not… I joke, like, “The CEO of one of these doesn’t need a platinum toilet.” These are offices that have basic buildout, light carpet, sheet rock, and then a warehouse that functions. And no matter what market you go to in the country, that’s what the industrial tenant needs. Whereas office, retail, some of these other commercial, these TI and buildout projects are becoming insane. I mean, you go look at, like, a new office for some of these companies and there’s a damn jungle gym in the middle of it. Like, it’s…there’s people that bought office in early 2010s thinking it was $30 of TI and now they’re having to offer $300 a foot in TI. Or restaurants are requiring insane amounts to build out these restaurants.

So, again, really predictable capex on the interior. And then the exterior, these are just boxes with a roof and air conditioners and a foundation. So, it’s very easy to go, “We’re going to buy this. This is the condition of the roof, condition of the ACs, condition of the foundation.” It was super predictable and there’s nothing, like, in the future right now that’s…we’re looking at going, “Yeah, tenants are probably going to start asking for, like, these crazy buildouts in here.” Now, if you own lab space or something where you’re kind of expecting that, that’s a little bit different. But you could also make the argument it makes tenants more sticky to the building because they have these intricate buildouts.

And again, their last mile. These are truly the last mile. Like where you live, just south of you on Granbury Road is that huge industrial park.

Jimmy: Yeah.

Chris: That’s like a half-mile from your house.

Jimmy: Right by the train tracks, right?

Chris: Yeah. That is last mile right there. I mean, that is so close to you. And those are becoming more and more attractive as more apartments are built, more houses are built, nicer houses are built. And as long as America keeps consuming, that last mile is going to matter more. And I think it’ll matter more 10 years from now than it matters today. Going back to the investment in technology, like, everybody’s solving for “how do we get as close to the customer as possible and deliver product as cheaply as possible.” And I don’t think it’s like we’ve reached the finish line and we’ve made it, I think this is, like, a natural progression for a long time. Which will make these buildings even more…

And I can give you one more. I can go on forever.

Jimmy: Yeah, one more.

Chris: But it hasn’t been institutionalized. The deal sizes typically tend to be smaller. And so you’re not competing with the huge groups. But if you can aggregate enough of these… So, say, like, nobody’s going to buy one $20-million-dollar building, but the same buyer would buy 10 $20-million-dollar buildings if they were all packaged together. There’s value to be added just by aggregating buildings and building a portfolio.

Jimmy: And do you have that in mind as part of an exit strategy, or do you have an exit strategy in mind? Might you bundle 10 or 20 of your properties and sell them all off, or maybe turn into a REIT, or do you… What’s in store for the future for you in terms of an exit strategy, if there is one? Maybe you’re just happy to buy and hold them forever though.

Chris: It’s a great question. I never worked for anybody. I…you know, I’m often the dumbest guy in the room, just kind of observing and learning. And so when we started in 2016, I could have never told you aggregation is a strategy. And then we bought like…we had bought like 10 or 15 deals by that point. And I remember our really good friends at JLL came to us and in like 2018, 2019 and they said, “We think if you sold five or six of these properties together, there would be a huge demand from, like, big institutional buyers.” And we were like, “No way.” Like, “Maybe, but”… And they were like, “And we think you’ll get an extra 50 to 100 basis points of cap rate compression, too, because of the size of the deal.” “No way.” And sure enough, we said, “All right, let’s give it a shot.”

And it ended up, you know, we had this great sale, it was more than we could have ever expected. But the lesson there was like… And it’s this way in every industry. If you can create larger assets to feed to the big, big companies, their cost of capital is cheaper, their economies of scale are cheaper. Like, they can just afford to pay more. And the returns their investors require are lower. So, it’s like this perfect dynamic of if you can take sub-institutional assets and make them institutional just by sheer size and volume, there’s money to be made just doing that. Not to mention all the other value drivers you can put in.

So, to your question, yeah, after that, the light bulb went off, “Okay, this is a strategy we can focus on.” But you can play that game in lots of ways. You could play it in, like, “Let’s aggregate five properties and sell to the next group up.” Then you can become the next group up, which is like, “Let’s buy five packs of five, and now we have 25. We’ll sell to that group.” That thing, that aggregation, works in different ways until you get to, like, Blackstone, where it’s like, “Okay.” And so, yeah, we’re playing that game at probably a different level.

And you asked do we go public or REIT. We’re really focused now on… We’ve sold a lot over the last few years. We’re really focused on how do we build the largest portfolio we can of great assets that we can hold for as long as we want to hold them for. And we’ll let the market decide what we do with it next.

Jimmy: So, you’re not looking, necessarily, to get an exit at any point in time. You’re just happy to continue to acquire, lease out, hold, and let that cash flow ring in month after month.

Chris: Yeah, we’ve built an incredible company. I mean, I know how hard it is to build, so I know how hard it is to replace. And so I never say “never,” but I’m not building it to sell it, if that’s what you’re asking. Now, again, I don’t know if in 10 years… I want to build something that’s attractive to sell, but I don’t…I’m not interested in selling. But I do want to build things that, as we’re accruing value, there is an exit for it should we ever want one.

Jimmy: Good. Well, I want to talk about the market conditions that we’re currently in. It’s been in a rather turbulent time in our economy for the past, I don’t know, call it 12, 24, 36 months, however long you want to deem it as turbulent. It’s been kind of rocky, I guess, since the pandemic hit, really. How would you qualify the state of, well, a couple of things, actually, I guess both capital markets right now, but also just the fundamentals of the industrial market itself?

Chris: Yeah. Interest rates are up almost 600 basis points, which is no surprise to anybody listening. I think we have a Fed meeting today which we’ll find out from Uncle Powell what he’s going to do next.

Jimmy: Yeah.

Chris: I would say from… I don’t have a crystal ball, I don’t even know what’s going to happen an hour from now. So, I’ll start there. But if I were to give my thoughts on what could happen, I think we’re closer to the top of the rate hikes than the bottom. So, if we have any left, I think we’re nearing where we’re at. Transactions are down 95% year over year right now. And I can speak to our asset class specifically, I’m not going to speak to others.

Jimmy: Sure.

Chris: What’s going on in ours really is a tale of two worlds. I call it the ground game. Our leasing has never been better. January, February this year, we were kind of slowing down and we thought, “Man, this might be the top.” Leasing had just slowed down, rental rates had kind of slowly crept up, but not at the speed they were. And then March 1 hit. And I don’t know what was special about March 1, but leasing started picking up. July is traditionally a slow month in leasing. We just had the best July we’ve ever had. Like, not by a little bit, by a lot. Which is just interesting. Because, if you read a lot of the mainstream media news, it’s doom and gloom, but you’re seeing leasing like we’ve never seen. Which may have been this like six-month pause where everybody thought the economy might crash or whatever. And so they didn’t want to make a new prediction…or sign a lease. And now their businesses keep growing. And now they’re all kind of coming back out leasing.

So, vacancy remains super low, rental rates are continuing to grow. Any vacancy that’s on market is not sitting there very long. Tours are high. So, industrial owners of this stuff are doing well. On the flip side, debt is now 7%, 8%, 8.5%. And so you don’t really have…like, now’s not really the time to sell, unless you have some situation where you’re forced to sell. Which could be you have other bad assets, so you have to sell a good one to pay off a bad one, which we see happen all the time. Maybe you have a loan coming due in the next year and you’re just not interested in getting a higher loan and, you know, taking on more stress at the property, maybe you have a baked in number. But almost virtually most people that are in good stuff this year have said, like, “We’re not going to sell this year. And we don’t need to, because our assets are doing really well.” So, it’s really, really slow.

The third is that’s on the debt side. And a lot of lenders can’t lend right now, to be Frank. Even if there is a good deal, a lot of lenders are just like, “We’re not lending right now.” I mean, they don’t maybe say it exactly like that, but the way they send you term sheets or the way they communicate is basically like, “We’re not interested.” Because of what happened with Silicon Valley Bank and a lot of things, there’s a lot of banks looking at internally going, “We need to get our balance sheet right, we need to, you know, just make sure we’re safe as possible.” And they’ve all done so well over the last 14 years, so there’s not a huge desire.

Then on the equity side, I think a lot of it’s an opportunity cost game. One, you’re making 5% doing nothing, sitting in your money market. So, you know, for all, I’m part of that crew, I’ve never lived in a market where you could make 5% doing nothing. It’s pretty nice. So, you have opportunity costs against that. You also have opportunity costs amongst allocated real estate dollars that have been raised of, “Do we want to do your safe, good industrial deal, or do we want to wait for this hypothetical event that could be coming where there’s more distress and opportunities there?”

And so a lot of people, I’m not saying have checked out of 2023, but it’s…you don’t lose your job in 2023 if you tell everybody, “We’re just going to sit on the sidelines this year, watch it go by, and we’ll talk again next year.” You know, 2022 and years before that, you were losing your job if you weren’t putting money to work quick. That’s how the industry works, capital flows. Nobody’s losing their job right now by saying, “Press pause.”

And so you have opportunity costs, and then you just kind of have this baked consensus in the industry. And I’m not saying people aren’t investing. Money’s moving, deals are happening. It’s down 90%, so it’s not a lot of deals. But we’ve talked to a lot of people that are like, “We have money ready to go, we just kind of want to wait until next year.”

Jimmy: Yeah. Capital markets are tight, for sure. Lenders aren’t lending, and seems like equity investors are a little bit hesitant. I’ve seen that, as well, in the niche I specialize in, in the Opportunity Zone industry. I don’t think Opportunity Zones are…that’s an Opportunity Zone-specific thing, obviously. You’re seeing it in industrial, as well.

Well, what do you see on the horizon, Chris? Do you think we might be headed toward a recession? Do you think we might be headed toward a period in time where we do see a lot of distressed asset sales? Is there a huge buying opportunity right around the corner for those who are holding some dry powder?

Chris: I think a couple things. Sadly, I think our country is very divided, which is no surprise right now. But I really believe that, like, and this isn’t a political statement, the risk of doing business in some states now is just much higher than it’s ever been. You look at California, or L.A., that had a moratorium on rent, being able to evict a tenant for three years. You don’t own the property when the government can tell you you can’t evict a tenant. The government truly owns your property, you just take all the private market risk.

So, you have some…I say that to say I think it’s recessions could happen maybe in pockets. And I’m not saying L.A. is going to go through a recession, I’m just saying you’re seeing a lot of growth to some states, you’re seeing shrinking in other states. So, I think you could see, like, economic dynamics that are just different depending on where you are in the country.

And then as you get into asset classes, I think office is in for a really tough deal. You have some office that, like, literally nobody can figure out what to do with again. And we haven’t really figured out a solution for that. And so I think that will be a part of the market that’s going to be impacted heavily. But then again, Class A, Class AA office, 100% leased, wait lists. All junky, suburban Class C office, you can’t give it away. You go to New York where there’s 20 million sublease square feet, or 100 million, some crazy number of sublease Class B space available on the market. So, and again, because office projects were always so large, a lot of equity and debt would flow into them because you could just deploy a lot of capital into them. I mean, there’s office buildings in New York that are worth like $3 billion, just one building.

So, I think there’ll be some issues there. It seems to me like a lot of the lenders and equity don’t want to go back through ’08, ’09, where the banks are taking all this stuff back. There seems to be a sentiment of like, “Let’s work together and figure this out.” We have an election coming up. Which I don’t make investment decisions based on elections. But just historically speaking, you have to think that folks would want the market up for the next year, heading into an election. That’s traditionally what’s happened. I don’t really think there’s going to be some huge depression…like, a huge recession. I think there’s going to be more just pockets that get stung rather than just this ’08, where just kind of everything collapses.

I say all that to say I don’t know what’s going to happen in an hour. I mean, I have no idea.

Jimmy: Yeah. So, take everything you’ve just said with a grain of salt, I guess.

Chris: But I’ll say this. We talked about this before. It just seems odd to me. And I want to say I’ve been through one cycle in my life, and I was very young. I owned assets. But I’d be honest, I was 22 years old, I didn’t really even know what was going on. But I’ve read a lot and I’ve talked to a lot of people that have been through tons of cycles. It seems weird to me that the usual sentiment is, “Hey, we’re going to get really well capitalized. We’re going to get flushed with cash. There’s this thing coming on the horizon and we’re going to all buy cheap assets together.” Like, that’s not how it works. In almost every cycle, people are really freaked out. Even the ones with liquidity don’t know when to pull the trigger. As humans, we know that, like, when things are the absolute cheapest is when we least want to buy them, or most people. And so this idea that everybody’s like, “Yeah, we’re going to wait until 2024 and there’s going to be this great buying opportunity,” That just doesn’t seem to me to fit how things usually work.

And so I’m in the camp that, like, maybe we see, like, this…they call it a rolling recession, pockets that are hit. But I don’t see, especially in certain…in the Sun Belt where we are, and population growth continues to grow, like, I just don’t see a huge impact coming. And I could look like a fool in a month if something crazy happened, but that’s my, like, opinion.

Jimmy: No, I think that’s…it’s based on some good, I guess, educated guesses. That’s the word I’m looking for. So, we’ll see what happens, only time will tell.

Chris, we’re starting to run out of time here. I did want to talk a little bit about, just shifting gears, your podcast, The Fort podcast. That’s how I found out about you originally earlier this year. And Barrett Linburg was a guest who was on my show, from Savoy Equity. He’s in Dallas. He was on my show earlier this year. I saw him on your show. So, I figured, you know, I got to hook up with you, Chris, after Barrett introduced us. Tell me about your podcast and what you do on that podcast. And if any of my friends are watching, what you do on that podcast. And if any of my listeners want to check it out, how can they find it?

Chris: Yeah. I’d love for you to check it out. It’s The Fort podcast with Chris Powers. I would say it’s 60% to 70% real estate entrepreneurs, CEOs, executives, owners, founders, and then 30% different industries. I started it in 2018. I’ve just naturally always been really inquisitive and curious about people. And I was always kind of having these type of conversations, just not with a camera in front of us. And so I was like, “Yeah, I’m going to record 10 of them and share them, and then that’ll probably be it.” And I’ve done 300 now, about to come up on 300.

And what started as, like, a cool little side project has turned into what I believe is a modern-day business tool. I think in 10 years, almost every CEO in the country will have a podcast. It is a way to talk to the world at scale where you can have a one-hour conversation and deliver that to thousands, if not millions, of people. You’ve seen it done internally at companies for a long time where the CEO or somebody might record a message, and then they broadcast it to the company.

So, it’s been a great way to meet tremendous amount of people, meet investors, meet brokers that bring us deals. It’s become, what’s a true pleasure of mine, is also what I call a business tool. And so I take it really seriously. I would say you have to love it to do it. It’s…you don’t do 300 of them by accident. You can run out of steam doing these. But it’s been a huge joy of my life, we have super interesting conversations. I think because I’m an entrepreneur, talking to other entrepreneurs, it adds an interesting dynamic of how the interview goes. It’s not like a professional journalist that hasn’t been in the arena asking questions. No shade on them, it’s just a different style.

Jimmy: Sure.

Chris: You kind of know what to ask because you’re also in that seat.

And, yeah, yesterday we had over…yesterday was our…actually our record, we had over 11,000 people listen to the podcast in one day. Which was more than I did in my first year. So, it’s a modern-day business tool that I love doing. And the biggest thing is the value it provides our audience and our guests, it’s just the feedback I get is amazing and it kind of drives me to keep doing more of them.

Jimmy: That’s great, that’s awesome. I love talking to…I don’t get to talk to a lot of other podcast hosts. Occasionally, I have an extra…an additional podcast host on my podcast. But more often than not, I think there’s a lot of similarities, actually, between my podcast and yours. Mine is very niche, focused on Opportunity Zones most of the time. I’m broadening it out to cover private equity, real estate more broadly. But loved hearing your thoughts there, and I kind of feel the same way you do.

By the way, I started this podcast as the Opportunity Zones podcast back in 2018. Really, I’ll admit right now, it was because I wanted to learn more about Opportunity Zones and I wanted to be able to talk with experts. And I don’t know if it was kind of like a Trojan Horse type of thing, but I almost kind of equate it to a Trojan Horse. Like, “Hey, if I put on the veneer that I’m a podcast host, maybe they’ll want to talk to me.” It worked.

Chris: Yeah.

Jimmy: And then I got to 10 episodes, and 20 episodes. And I’m actually closing in on 300 episodes myself, I think this is episode 270-something right now.

Chris: Congrats.

Jimmy: So, we’re… Thank you. So, we’re kind of on the same trajectory. I have never had a podcast day where I had 11,000 listeners though. So, but maybe this one will be the one that breaks that record.

Chris: Come on, baby.

Jimmy: So, you never know. But, Chris, it’s been a pleasure speaking with you today, really appreciate all of your insights. Before we go, if we have anyone in our audience, any high-net-worth investors or advisors out there, who want to learn more about you and Fort Capital, where can they go to learn more?

Chris: You can go to the podcast. We do lots of episodes just about our business. You can go to fortcapitallp.com. And there’s ways to sign up to get in touch with us on a variety of subjects. Just go to the “connect” button. You can follow me on Twitter, @fortworthchris. Or you can shoot me an e-mail.

Jimmy: Perfect. And as always, of course, for my listeners and viewers, we will have show notes for today’s episode available on our website at opportunitydb.com/podcast. And I’ll have links to all of the resources that Chris 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. And, hey, maybe we’ll hit 11,000 with this one, that’d be great.

Chris, thanks, again, for joining me today, I really appreciate your time.

Chris: Thanks so much. Appreciate it.