JF1415: Finding Your Market & Going ALL IN with Chris Powers

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Chris and his team are extremely bullish on the Dallas – Fort Worth market over the next couple of decades. Because of that, they have been expanding rapidly in the area. From multifamily and industrial to office and urban core, they buy and hold it all! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Chris Powers Real Estate Background:

  • Serial entrepreneur with more than 13 years of real estate development and investment experience
  • Has raised more than $70 million in equity financing through a multitude of high net-worth and family office partners
  • His Company, Fort Capital has invested and developed over $200M in multifamily, industrial and urban properties throughout Fort Worth and the greater DFW Metroplex
  • Say hi to him at https://fortcapitallp.com/
  • Based in DFW, Texas
  • Best Ever Book: Traction

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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Chris Powers. How are you doing, Chris?

Chris Powers: I’m doing great, thanks Joe. How are you?

Joe Fairless: You’re welcome. I am doing well, and nice to have you on the show. A little bit about Chris – he is a serial entrepreneur with more than 13 years of real estate development and investment experience… And here’s the proof in the pudding – he has raised more than 70 million dollars in equity financing through a multitude of high net worth and family office partners.

His company is called Fort Capital, and they’ve invested and developed over 200 million dollars in multifamily, industrial and urban properties throughout Fort Worth Texas and the greater Dallas-Fort Worth Metroplex. With that being said, Chris, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Chris Powers: Yeah. As you mentioned, I started a company when I was 18, in college at the time; it was called Powers Acquisitions, and it was set up to buy rental properties around TCU. That eventually kind of grew into a full-time student housing leasing company and property management company.

I did that all throughout college, and really grew the business over the last 9 years. Now we have a team of 19 amazing people.

We focus on buying and developing multifamily, buying industrial, and buying kind of urban core assets throughout Fort Worth, Dallas, Houston and El Paso. Primarily right now the majority of our work is in the acquisitions space, although we have development projects that we’ve been working on for a couple years… But the majority of what we’re doing is acquiring.

Joe Fairless: The majority of what you’re doing is acquiring… There is a mixed feeling right now about if investors should or shouldn’t be acquiring. What are your thoughts? Well, I know why your thoughts are, but why are you choosing to acquire at this stage?

Chris Powers: The market is high; the people that are wary of acquiring real estate – it certainly comes with merit. I think the way we look at it is, number one, our culture and philosophy is deep-rooted in more of a long-term hold than a get in and get out investment time horizon, more like 3-5 years… We’re more like 7-10 and beyond.

We really believe in the Texas story right now and the fundamentals of Texas. We love the job growth that DFW has, the business climate, the cost of living, the lack of new supply that’s meeting the demand… We’re having corporate relocations coming in from everywhere, so there’s a lot of fundamentals specific to Texas that we really like, which is where we’re doing all of our investing and buying. So it’s more of a Texas-first strategy.

Having said that, it’s not like every single deal we look at is a buy. It’s harder today to find a deal than it has been in a long time, but we’re just very bullish on Texas over the next 20-30 years.

Joe Fairless: You said your focus is buying and developing multifamily, buying industrial and buying urban core. Real quick, can you define urban core for any Best Ever listeners not familiar with that?

Chris Powers: Yes, we look at urban core as densely populated cities, and within those cities buying close to — I guess you would call the core is really downtown and trying to buy within three miles of downtown, in growth corridors where density is starting to occur, where old buildings are being torn down to build more dense buildings, where walkability is becoming more the trend… So properties that kind of fit that model.

For us, that could be buying buildings that can lease for now, that are on top of land that we think would make great development down the road, all the way to locations that we feel like are kind of once in a lifetime opportunities to pick up, and they’re just gonna kind of keep getting better. Those asset classes vary, but we’re really intentional about just location and how we think the city can build out around it.

Joe Fairless: What’s an example of an industrial project that you’ve purchased?

Chris Powers: The last one we closed on was two weeks ago…

Joe Fairless: Congrats, by the way.

Chris Powers: We started our industrial team a little over 18 months ago. We’ve just achieved a million and a half square feet of property that we now own. We call it light industrial, kind of shallow bay assets. The latest one we bought was in Garland, Texas, which is East of Dallas. It was a 650,000 square foot manufacturing facility built in the late ’70s. It sits on 52 acres. It was 94% leased, and it’s the low-cost provider in the area, so due to the age of the building, we’re able to charge significantly less than what new construction or newer buildings are charging.

It sits on a great piece of land, it’s rail-served, in an industrial market that’s probably the largest feeding into Dallas. It was an off-market deal, and our plan is to hold it for 5+ years, renew rents, update rents, and then we potentially think we have an amazing development site down the road… But for now, it’s an amazing industrial play.

Joe Fairless: You mentioned a couple things that someone – or myself, I’ll just speak for myself – who is not in industrial would not look for in multifamily, and that is rail-served is one of them… What are some other components of an industrial deal that are unique to industrial, or attributes that you’d look for?

Chris Powers: You look at things like the depth of the buildings, you look at the clear heights, which is how high are the buildings or how tall are the buildings and the ceilings… That has a big influence on manufacturers or warehousers or distributers that are storing goods – they need to know how high they can store those goods, what type of equipment/machinery they can have inside the warehouse to work on either manufacturing processes,  or how they store goods.

You have rail-served, which is larger buildings along train tracks, and that means that train cars can off-load and on-load product into buildings. You look for access to major highway systems, so you can find areas that have 18-wheelers that can come in and go out and easily get on the road for kind of their major transportation routes, you look for buildings that might have excess land – they call it yard, or yard storage, where people can park their extra trucks, pallets, machinery, equipment, different outdoor items.

A shallow bay is typically looked at as more of — you find that more in multi-tenant buildings, so that you can cut buildings up. The shallow bay would be the depth of the bay on the building. If you see Amazon in a million square foot building, it’s one enormous building; the dimensions of it are very large, and to cut that building up into multiple tenants would be tough. But when the building is narrower and longer, you can kind of cut that building up into more spaces, so that you can offer it to more tenants.

The light industrial vintage, kind of older industrial – it tends to be in industrial parks that are closer to the city center, just due to the age of when they were built, and they’re usually on a lot of land, and we love land here, especially in the bigger cities… So it’s interesting to us.

Joe Fairless: So the ideal industrial property is narrow, but very tall, has a yard next to it, close to a bunch of highways, and a railroad track.

Chris Powers: That would be pretty awesome. There would be a lot of demand, a lot of tenants that can use that type of space.

Joe Fairless: Cool. You’re buying and developing multifamily… Why develop? And there’s pros and cons to anything in life; I personally am not going to get into development because of the increased risk – in my opinion – that there is in development, and stress level. But you’re developing, so clearly you have a thought process for why that is the better model for you. Why is that?

Chris Powers: Well, it’s kind of interesting you ask that… So we are developing, and I said a little bit earlier in the show that we’re mainly acquiring now, and everything you just said is absolutely true. What we have learned as we’ve grown as a company is that acquiring property that already exists and working in that environment is less risk, it’s more controllable, both on cost and on time. It is a better lifestyle.

Development poses a lot of stress, especially in the urban core, where you’re redeveloping old properties. I think over time we are much more interested in acquiring than developing. Development comes with a lot of fatigue, there’s a lot of unknowns, and at this point in the market the returns don’t justify the additional risk and headache and lifestyle that you have to put up with to get these deals over the goal line. So I think during the next cycle, whenever that may be, there is a time and a place to develop, and the acquisition I think is a better lifestyle, no matter where you are in the cycle. Development is like, when it’s the right time, it’s worth the pain, because the gain can be really great.

Joe Fairless: What factors or metrics do you look at to know “Okay, time to suck it up. I’m gonna do development. It’s the right time. It’s gonna be stressful, but you know what, it’s gonna be worth it.”

Chris Powers: When land prices have done down. In down cycles, land prices typically take the hardest hit, because they have no cashflow to them. Banks do not like to hold raw land. So when land prices get low, when the cost of labor and construction has gone down because people for a year and a half into recession haven’t been building and so they’re dropping labor costs, material costs are going down – when those factors allow you to produce a building, and then demand is still in the market to where you can build a brand new building, sometimes for cheaper than you could buy an existing building, because a lot of the folks that had been buying while the cycle was up have a high basis in their properties, or they’ve developed properties that cost a lot more to build, the land costs a lot more, the constructions costs… So you’re able to enter the market with a newer product that the market will like, at a much cheaper basis, and you can achieve a better return on the cap rate that you can build to, to the cap rate that you can sell on, then it would make sense to go buy something.

It’s typically tougher also to develop in the down times, because people are a lot more nervous then. If you look over cycles, the people that kind of come out early in the cycle, developing, tend to do the best. They don’t necessarily probably think they’re gonna be doing the best, but history shows that they will, because a lot of the stars for good development align.

You have a city government that doesn’t have permits in line, a bunch of projects they’re working on, so they’re easily able to get through projects. Land’s low, construction cost is low… It’s kind of the perfect storm. And then as construction costs rise, as the city fills up with projects, as land prices rise, that margin for error continues to get squeezed and squeezed, and at some point there’s a breaking point… Some companies don’t ever see that; we certainly do, and we feel it, and we just feel like we can control our destiny a lot easier by just acquiring existing than developing new.

Joe Fairless: 70 million dollars in equity has been raised by you and your company for your projects, and in your bio it says it’s through high net worth individuals, as well as family office partners. Of the 70 million, what percentage is allocated towards family office partners, approximately?

Chris Powers: I would say probably half.

Joe Fairless: And how did you initially get introduced to those family office contexts?

Chris Powers: I want to get a lot out of today, but if there’s something that I think was a real critical turning point for us, it was — again, I started the company in college, and at the time (2004-2005) the economy hadn’t gone down yet… I had a friend that taught me how to buy rental houses. An 18-year-old with no credit, no money down… This was kind of the epitome with what was wrong with the economy at the time, which was just basically lending to anybody with a pulse… But we were getting loans through Countrywide with 3%, 6% cashback at closing. So we were putting very little money down, and then we were going and leasing these homes, and then going back to the lender and getting them refinanced and pulling out money.

So what I learned early on was you can grow money off of using other people’s money, and in that instance it was the bank’s money that I felt like I was using.

Fast-forward, it made me realize that’s not gonna last forever, and in 2008 when it didn’t, that’s when I really started having to look to other people for money. My mentor, who has been my mentor for 12-13 years always told me “You’ll build a great real estate company if you treat investors like royalty and like gold, and get them their tax documents on time, and communicate to them quarterly, send them financials, communicate what’s going on in your projects, prepare good legal documents when they’re signing in to be a partner of yours… All the things that make their life as your investor easier. And by the way, go do good projects that produce good returns, and you can scale that quickly.”

So I’ve put a lot of emphasis really early on on learning how to work with investors, how to put together pitch decks and investment decks to raise money, and it became kind of a strong suit of mine. So it started with a few people out of college, people that I’d gone to college with and their parents, and did  a deal, made money, and then we raised money for another project, and they introduced me to a few folks… “Hey, you might wanna talk to him”, and over 12-13 years it’s just kind of been this revolving door of meeting new people through our current network of investors.

The family office environment – they’re all very close with each other, they kind of live in their own world, so you get introduced to family offices from other family offices; they co-invest together a lot… And in the high net worth, kind of friends and family world, yes, it can work both ways, but if you go make somebody money, they wanna tell their ten friends about you. I guess if you lost somebody’s money, they might go tell 100 people about you, so it works both ways. We’ve been fortunate to continue to earn people’s trust, and we get introductions all the time, really without asking… And we’re taking them to heart, and cherish them, and we treat our investors like our customers.

Joe Fairless: What’s the difference between working with a high net worth individual compared to a family office?

Chris Powers: I think the main, general differences are a family office typically has hired investment professionals; they could be MBAs, or really smart accounting/finance people, and their job is to deploy capital into assets that will keep making the family money. The family at that point usually doesn’t need to be making huge returns, because they’ve already made their money; they’re more trying to grow steady, consistent wealth… So when dealing with a family office, I think there’s just a lot more kind of — I wouldn’t say red tape, but just more hoops you’ve gotta jump through to kind of check all their boxes.

They’re in the business of investing, so every investment they make, they treat it very much like a business, and they require good reporting and communication and all the things we already do… Whereas a high net worth individual, which basically just means they have a lot of money – they might be a one-man show, they have a couple million dollars of cash in their bank account, they go put 100k or 200k into one of your deals… They don’t really have any systems or processes set up to kind of constantly monitor you and be checking in.

I think high net worth people tend to be more passive, because they have other things going on in their life… And typically, they’re not investing enough into any one of our deals that they have to watch us like a hawk. They’re probably allocating 1% of their net worth into any one deal, and so they tend to just probably be a little more flexible to deal with, a little easier to work with… And not that family offices are tough, it’s just more work.

Joe Fairless: What type of terms, generally – or specifically, if you can be specific maybe about a deal – would a family office be provided on a deal if they are the only limited partner, versus high net worth individuals? …if those terms are different; perhaps they’re not.

Chris Powers: They are different. I think you can do better as a general partner or an operator if you syndicate capital from a multitude of capital sources to where not any one investor is more than 20% of the total partnership. If you just had one investor that was a family office, you might achieve terms that look similar to some type of preferred return with a split in the back-end, so it would be like an 8% preferred return, and then a 70/30 split on everything over an 8%.

What that means is if somebody gives us a million dollars and we give them an 8% preferred return, it’s basically like an interest rate on their money. We need to pay them 80k that first year, which is that 8%, and then if we sold it a year later and let’s say we made a million bucks in profit, we will pay the first 80k to pay their preferred return off, and then everything left, which would be 920k, would be split 70% to the partner, which is the family office, and 30% to us, which is the general partner.

On friends and family syndicated deals, or even with high net worth and family offices, a syndicated deal, and we might get something more like 60/40, or we’ve done deals where (it was a land development deal) we knew we’d only be in it for a year, and we just offered our equity partners a 20% interest rate on their money. It was equity, but as long as we paid them 20%, we kept everything above that. That worked, as long as we stayed on schedule and sold quick, and met our timelines. The longer we would have had to hold that project, it would have kept eating out of our potential profit, and so we were willing to take the risk that we would execute, and for that we were offering a guaranteed 20% return, assuming that the deal was profitable.

Joe Fairless: What is your best real estate investing advice ever?

Chris Powers: My best real estate investing advice ever is location matters; it’s the common, common thing. Buy good locations. They’re the first to come back in a down market, and they do the best in an up market. And I think more than anything it’s just knowing your market. So wherever you’re placing your money, wherever you’re investing your money, it is super important to not just know about the one property that you’re looking at, but know everything else going on around it – who’s moving in across the street? Does the city council member like development? Do they not? Is there environmental issues? What are the rental rates in the area?

You can look at a lot of maps online, and everything on Google Earth kind of looks close to each other, but you know very well in your specific cities that you wanna be on this side of the street, not this side of the street, or on this corner and not that corner.

Knowing all those little details is what we call knowing our market, and the better you know it, the easier it is to find truly good investments. If you’re just looking at it like a piece of property and not the market around it, you can write a proforma, you can do all that work, and you think it looks good, but if people are leaving the city because there’s no jobs and everything else, the market could take that down quickly. So know your market and buy good locations.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Chris Powers: Let’s do it.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [[00:21:29].06] to [[00:22:33].04]

Joe Fairless: What’s the best ever book you’ve read?

Chris Powers: Traction, by Gino Wickman.

Joe Fairless: Best ever deal you’ve done that you haven’t talked about already?

Chris Powers: I assembled 36 homes in the hottest area of town – replotted them, re-entitled them and sold them to a multifamily group.

Joe Fairless: Dang! That’s impressive. That’s Sam Zell style, he opens up his book — have you read that? “Am I Being Too Subtle”

Chris Powers: No, what is it?

Joe Fairless: Well, he opens up his new book by saying that’s how he got started in Ann Arbor, Michigan, assembling a bunch of single-family homes, and i think he did some student housing development with it… How long did it take you, what were you all-in at, and what did you sell at?

Chris Powers: It took us six months to buy all the homes, it took us seven weeks to put it under contract with the group, it took us 18 months under contract to entitle it and get to closing. Our total all-in — so we bought it in 2011, which was kind of at the bottom of the market, or kind of coming out of the bottom… We bought the land for $11/foot, which basically put us all-in at about 3,5 million dollars, and we sold it for 10,8 million dollars in 2013 to a multifamily group.

The lesson there is, obviously, buy low, sell high, but more importantly, as the urban core continues to grow, there are opportunities to take land that was once just a single home and create the correct zoning and density you need to where we turn those 35 single-family homes into 420 class A apartments, on the same amount of land. So land prices can go up considerably when the density that you can get on them increases considerably.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Chris Powers: I think the biggest mistake we’ve made — I think this is with every business, but trying to be too many things to too many people. At one point we were trying to do property management, construction, fully-integrated, and we weren’t really great at property management, so it just was a mistake. We got out of property management and now we’re doing much better.

Joe Fairless: Best ever way you like to give back?

Chris Powers: The best ever way I like to give back – we support Rivertree Academy in Fort Worth. It’s a private school built in one of the most challenged neighborhoods of Fort Worth. They are starting with kids in kindergarten and growing them through sixth grade. These kids are doing phenomenal, they’re flourishing.

So overall, our theme across the company is helping children that have challenges in their life get the most out of the opportunities available to them.

Joe Fairless: How can the Best Ever listeners get in touch with you and learn more about your company?

Chris Powers: They can go to our website, FortCapitalLP.com, or follow us on Instagram, @fortcapital, or come to Fort Worth, Texas and let us know, and we’d be happy to host you at our office.

Joe Fairless: I got a lot of value from this interview, I personally did, and I’m really grateful that you were on the show. I learned a whole lot, from an ideal industrial property, really validating my thought on development, but then also there is opportunity with value-add development, which I guess is redundant – all development is probably value-add. But the example where you talked about the best ever deal, where you essentially profited about 7 million bucks, you and your investors…

And also talking about the difference between having family office investors versus high net worth individuals, and the structure of that – both communication style leading up to the closing of the deal, and then also the structure that you had with them.

Thanks again for being on the show. I’m really grateful. I’m sure that this added a lot of value to a lot of the Best Ever listeners. I hope you have a best ever day, and we’ll talk to you soon.

Chris Powers: Thank you very much, Joe. Have a good one.

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