#334.- Chris Powers & Jason Baxter - Fort Capital's 2023 Year in Review

Chris Powers: Hey guys, it's Chris. I am excited to hear the recording I just had with Jason—our year-end 2023 review. Our annual letter is coming out on February 5th, the following Monday, and goes into much more detail. What happened in 2023 and what we're thinking about in 2024 wet cover today. The first is the fundraiser that we're in the middle of and ways that you can get involved. 

We talk about the biggest wins of the team that we've had this year. We talk about the AI we've been building, its capabilities as of 2023, and how we think it'll grow in 2024. The pipeline we're looking at is how we increased profitability in some company regions, the many efficiencies we took over, and thinking about a year when we did fewer deals.

We had all of that time to focus on operations. And if you've been following our company long enough, you know that our mission is to be a great operator and the best real estate operator in the world. We talk about our exceptional team and talent, how we grew, expanded, and learned this year, and then we bring it home on an outlook of what we think might happen in 2024 and how we're positioning ourselves as a company. So, thank you for continuing to join me. It is the sixth year we've done a year in review, and these keep getting better. And I know one day I'll look back many, many decades from now. And it'll be fun to see how this thing evolves. So enjoy the episode, and thank you so much for listening.

All right. Do you like podcasts? I like podcasts. One thing that I like a lot is Juniper Square's distribution. My good friend hosts it. Who's also been a guest on this podcast twice, Brandon Sedloff. I highly recommend checking out the episode they did with their CEO and co-founder, Alex Robinson.

They talk a lot about the current state of the business and just how they're looking at it in the future. They also did a good one with the CEO of a BGO, Bentall Green Oak—Sonny Calso, which was fantastic. Juniper Square has meant a lot to Ford Capital. We have been one of their earliest adopters.

We were one of their first ten customers. And, if you think of how we run our business, it's synonymous with Juniper Square. We use them in every way we can. They continue to develop new products that our team devours and adopts, and we aim at Ford as part of being the best operator in the world.

A lot of that is how we deal with Investors, how we raise capital, how we treat our investors, and how we communicate with them. A lot of that happens through Juniper Square. So, I've been talking about this company on my podcast for five years for a reason. And we'll continue to. It is just that good.

One of my favourite things to do is raise capital; I have always loved it. I love putting together deals, but one thing that is always tough for me is putting together the actual pitch deck, which is essential when you're raising capital or whether it's a corporate overview, a track record deck or investor reporting collateral, but putting together any deck for guys like me has always just been tough.

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Jason, welcome back to the show. 

Jason Baxter: Here we go again. 

Chris Powers: If you are listening to this, this is the 2023 year in review. One of the most excellent parts about doing this podcast is now that it's been going on 5; this is the beginning of our 6th year. We have catalogued our thoughts and how we looked every year since 2018.

So you can return to episodes 258, 194, 103, 45, and 14. We have done an episode like this every year, discussing what we accomplished the year before, what we learned the year earlier, and what we saw coming up the following year.

Jason Baxter: You probably skipped 14, that first one. 

Chris Powers: Go to 14 to realize anything in life is possible because if we can do it, you can. I went through a lot of the questions like we would. No, we've gotten better at planning these discussions, but it was the Wild West back then. 

Jason Baxter: Well, we've improved as a company and team, so it gets easier to talk about it. Back then, we were dreaming more than we are today.

Chris Powers: If you need more support about where you are in your company, listen to episode 14. It'll make you feel a lot better. We're going to sit down and talk about 2023, which was an exciting year, for many reasons that we'll discuss. If you're in real estate, you probably know why 2023 was more interesting than some of the last.

It was an excellent year for us, not necessarily because we did a ton of deals, but because we focused Introspectively and focused on operations and the team this year, knowing that there were things that we could get for coming out the other side of this and move forward, with better operations.

Jason Baxter: Yeah, and we look at it as a blessing.

We talk about it all the time, but you know, especially the last couple of years that we had 21 and 22, we were moving so quickly; things were happening so fast that the market was on fire. Everybody knows interest rates were unbelievably low. And so we were able to take advantage of a lot of opportunities.

So, although we were improving the company and we talked about all those things we were doing, we were still trying to improve operations across the board. But when you're buying, you know, 2022 500 million worth of deals, you have to spend a certain amount of time executing the agreement. And so it limits your opportunity.

But when the market pulled back and started to pull back. In the third quarter of 2022, we started slowing down on the acquisition side to pay attention to what was happening in the market and be patient. We immediately turned our attention to everything we wanted to get done, from, you know, technology, improvement of processes, meeting structures, and many things to be the best across the board of everything we do.

And so we look at last year as a 100 per cent complete blessing, even though we were still able to achieve a lot, which we'll talk about, in terms of deals, we were still able to accomplish quite a bit, but what we were able to achieve was how much better the team got, how much better the company got, how more prepared we are for the future, and how much more we'll be able to do in the future because of the work that we put in this year.

We talk about it. In the last three versions of this about laying the foundation, we had a great foundation. We have a great foundation, but what we've started to do is add the engine to that foundation. So we've built the horsepower into the machine now where we can tackle whatever's in front of us at whatever scale we decide in the future based on what the market gives us. We can go into some detail about what we accomplished, but we did a lot this year. 

Chris Powers: We did a lot. I just wanted to start with fundraising because I think it'll probably, as we look back, be one of the years where it, one, it was a huge thing that we have been working on, not just in 2023, but dating back to decisions in 2022, and it is going to start at kind of probably a new chapter at Fort. And the one thing that, you know, we've always talked about and has been a defining part of Fort is we've always been privileged to have excellent partners.

And we have now over a thousand of them. A thousand and forty-seven, to be exact. And that started way back in the day with eight people we passed the hat to. And everybody's been like, well, what's been your strategy? The strategy has been to continue doing good deals and building a great company, and they will come.

We've never really solicited anybody. We've never done an extensive marketing campaign to get people to invest with us. It's been warm introduction after warm introduction; we've had excellent partners, people who write us 50,000 checks to people who write us 20 million checks and everything in between.

But I think as we were growing and we were seeing what was coming in the middle of 2022, and to predicate that real quick; I think there had been a series of years where we were like, should we raise a fund or should we get pre-committed capital or should we not? The truth is, we kept going year after year and continued growing everything we needed.

In multiple years, I mean raising over 100 and syndicating over 150 million equity that year. And I think in 2022, we said, we probably need to know that the deal business is probably going to slow down, and this would give us plenty of time to figure this out; we began taking our first trips up to New York to start exploring, and I think we made a commitment that we are going to do everything we can to raise.

Some vehicles would give us pre-committed capital and the ability to compete more in the market. We would find new investors who can write more extensive checks and then bring along some of the great investors we already have. We are also redoing our structure from a one-off syndication business to a fun structure that gives us pre-committed capital and the ability to run much quicker and grow the company more efficiently. We'll talk about efficiencies here, but we noticed that many parts of our business were getting very efficient. Our capital efficiency was not.

Jason Baxter: Yeah, I mean, we, just like everything else in our company, we've gotten good at raising deal by deal, as you mentioned; we have an unbelievable network of dedicated investors that believe in us, believe in what we're doing, and we want to make sure that they have an opportunity with us forever.

And we're going to make sure that that's the case. But where when you look at a company like ours, it does start to become inevitable that to align every part of the business to be able to keep up with every part of the business, you have to take a hard look at how things happen in the market and how things, especially how capital flows and the timing around those things and decision making and the ability to execute a deal.

And although we are very good at it, like we are many things off, putting together, OMS, getting them out to our investors, raising the capital, following up, getting all the documents signed, all that stuff we've built, efficiencies around, where we're at as a company is much larger. And the scale is so much bigger now from the standpoint of our ability to execute and the deals that we know that are out there, and now that we've expanded across the nation, across the Sunbelt, to have that committed capital, even from our current investors allows us to make brighter.

Quicker, more strategic decisions as a whole, and be able to move much faster so that you spend more time focused on the investment on the execution of the strategy of actually getting the deal and returning the money as opposed to figuring out how to get the money side done deal by deal by deal.

So, when you look at what we do, only a few people get to our site and continue to raise the money deal by deal. We get told this all the time, and it's funny because one of the most significant points of feedback we got early on was you all should keep doing what you're doing.

And that is true. That's one of the reasons why we kept doing it. We kept getting much good feedback that it was the right way. And it was for a long time, and there will always be a place for the deal by deal. There will always be a place for sidecar deals and smaller deals. We'll still find opportunities where it may happen like it's always happened. Still, for most of our ability to execute at scale, we'll talk about the pipeline and some of the things we have in place now.

It would be a disadvantage to us, our investors, and everyone else on our team if we needed to structure it to align with how well this company is built and align that equity. A similar structure that can be moved quickly is an essential part of the future of Fort Capital. 

Chris Powers: So we hired the team at JLL, one of their best teams focusing on this, in May of 2023.

We worked most of the summer to get a data room going, and we've been live in the market since November. And look, we're trying to raise four to 500 million bucks, and we are. We've had a lot of great conversations, which is a testament to what we're doing and really who we are first; people love the platform, the asset class we've chosen to stick in, and the markets that we want to participate in, which, you know, it's not rocket science that the Sunbelt and the major cities and that have significant growth prospects, but you line those three things up.

After we talked about our team and everything, the critical part was the team, but the asset class was super exciting to many people, even in an environment like this.

Jason Baxter: Yeah. It's one of the few investment opportunities that has shown its strength through all the ups and downs from before, through, and after COVID.

You know, through the market cycle, we just went from low interest rates to hyper-growth interest rates, which shocked the whole system. We'll talk about some of the things we put in place to absorb and monitor those types of changes in the market, but it just shows the resiliency of this asset class and further strengthens our belief in what.

When we look at our pipeline, we look at the opportunity. We look at the growth of these cities that we're targeting. And we look at the macro and the micro of what's happening in those markets. And you look forward to the world with everything we know is happening with reshoring, the supply chain, why people are moving to the Sunbelt and the South, and what will happen with these markets.

You will see, at least, more supply constraints regarding this product in the next decade. And so it, you know, we're fortunate to already be good at it, have a system in place, have a team in place to take advantage of it. We'll be able to provide many opportunities for our investors.

Chris Powers: Well, if you're listening to and hearing about this or learning more about this interest, we'd love to hear from you; we're excited about it. As you said, it's a new chapter for the company and will be a win for all stakeholders.

Jason Baxter: Absolutely.

Chris Powers: All right. So, at the year-end deck or the year-end meeting that we go through, we have a deck, and there's a sheet that we call 2023 major company wins. I picked a few that we should talk about. We had discussed some of them and begun the conversation last year, but they only happened this year.

But I decided to go through it, and we could jam on a few. The first one was called Invoice Parser. Leverage document AI to improve invoice process and reduce employee manual data entry. What was that? 

Jason Baxter: So part of, and I think we talked about this last year, is just doing a cash management strategy.

Taking what regular asset management companies or investment companies do for cash management at the asset level and taking it to a new level. Pushing it, using technology, data, and AI, basically saying how smart we can get at how we look at the need of the asset of the investment and what is coming up.

Try to plan out further than usual and be prepared for any situation that could come to cash management. And so the further we dug into that, which started as a goal to improve cash management across not just all the assets we were doing but also for the company at the time, just because you're going to solve one process, use it across the board.

And that uncovered a million things you could improve to improve cash management. So this is one example of that. So, we started with the invoice process. So, we first created a systematic method of handling invoices within the company, including how they're received.

How they're processed, automated, where that data goes, what happens with that data, who gets notified, when, how, all those things, right? So, we built that into FOS, our operating system. We've talked about our operating system many times in that process. We talked about our AI contest that we had this midyear.

So, part of the AI contest was to challenge the team to develop creative ways to use AI in the future. To solve everyday business challenges or needs. One of those things that came out of that, which we knew would be, but somebody took the initiative and solved that problem, was using AI to parse data out of a printed document, a PDF, or even a handwritten document.

Parsing information out of a document means extracting that data out of a document, right? And not just remove the words but pull them and turn them into data. So, the ones and zeros language, right? So computer language. We decided to do this as a first test of being able to parse documents because we are now parsing many different types of documents.

In the future, for every document that gets brought into the company, all the data will be extracted no matter what kind of document it is, and many of our documents in our cloud storage databases are already happening that way. But the invoice parser did, and we received an invoice from our accounting or India teams. Instead of that invoice being opened and looked at by a human and then done, something is done with it, meaning the data is taken out of it, put somewhere else, and sent to somebody else. The data is automatically extracted using AI out of the invoice. As soon as we receive it, that extracted information automatically gets populated into our database and creates a work order or, essentially, a ticket.

Imagine that I'm trying to make it understandable for anybody. We use different languages for it. But It gets transferred into a form that can be tracked wherever it goes. And so then it gets assigned, it gets completed, it gets into an accounting process and gets processed, right? But it eliminated the human need to open an invoice, take it, do something with it, and process it.

So we are taking an antiquated system and making it automated to where, in the future, you won't need it—a human to process an invoice at all. And so we're just at the beginning of it. And the tech team likes to say it's as bad as it'll ever be right now, and it's pretty good, right? So, the AI parsing of documents or data out of documents is already extremely impressive, and it's just getting started.

So, we have handwritten things that get sent to us in invoice form from a contractor or something, and it will take the information out of there that they wrote by hand. Again, it's just one of those efficiencies that we're starting early, and it's already showing a massive impact, and the sky's the limit of where it will go from document parsing.

Chris Powers: The Renewal Rock Star initiative challenge kicked off for the FCP management team to support tenant renewals across the portfolio. 

Jason Baxter: Yeah. It is an excellent example of how we operate as a team in a true sense instead of assigning traditional job roles and expecting all the work to be done by that person.

It's like how we think about acquisitions. And we've talked about this a lot while we don't have a traditional acquisitions team. It's more of a team approach where different people are responsible for finding, buying, and sourcing deals. And so it truly is a team approach.

In this regard, regarding the renewal rock star, which is funny because we just awarded the winner of this today, actually in our team meeting, for the end of last year. But what this was, looking across the whole portfolio and saying, how many renewals do we have this? We started this at the beginning of Q3, so we saw two full quarters in the year to go.

And we said we have a hundred and eighty potential renewals at the asset level between now and the end of the year. Well, most companies would say those leasing teams better get on it. They better get those leases done. We got a lot of renewals to get. And that for sure happens, right? We have an internal leasing team down in Houston.

We also have some tremendous third-party leasing teams, and we manage them, but we put an incentive in place to ensure those teams were driving in leasing; as we said, what else could we do? So, we incentivized our property management team to participate in the renewal process. So why would you do that?

Because who talks to the tenants? The leasing teams, once they sign the lease, they aren't hands-on with the tenants from that point forward until that renewal comes up, and then they Follow up with them and say, Hey, you know, I remember we signed this lease three years ago, your renewals up. What do you want to do?

But there's been somebody talking to them every month. Every month since today, they sign that lease; that's their property manager. So, we incentivize the property managers to get those renewals. Don't just rely on the leasing teams; incentivize the property managers to be responsible for getting those renewals by building better relationships and solving that problem.

And so we create. Steve Bailey, our president of Property Management, came up with this fantastic idea, the Renewal Rock Star Initiative, where he made a contest to challenge all the PMs to get the most renewals. There was a way that we built that into our process to earn that renewal; they had to follow specific steps and documents in our F. O. S. System that would tie them to the lease to show that they pushed that initiative forward. And so anyway, it had a huge impact. So we had many property managers get dozens of renewals by basically incentivizing them to say, don't rely on the leasing team to do this. Let's call them. 

Chris Powers: That's awesome. Okay, speaking of the challenges we did, you already touched on it—just the company-wide AI challenge. And we can give a high-level summary of how it came to be. And then it would be cool to say how we rolled it out as far as who did it first and then how it made its way through the company.

Jason Baxter: Yeah, I think that's the most valuable part of it; looking backwards, I thought, you know, I thought it was clever when I thought of it, but I didn't think of it as deeply as I do now at the time, but it came out of just a quick idea. That I had one day after a discussion about things we were doing as a small group with AI as a, we had a few people on the executive team that I was working closely with to use some, uh, chat GPT tools and plugins and things.

We talked a bit about this on the last one, but we were making real progress in what was possible and how we already used it daily. And we talked about it in our executive meeting, but, you know, when you look at a group of executives or leaders in a company.

You're going to have only some people who are super interested or into, or willing to make that leap from the way they do it today to some new thing that has yet to be done, especially when it comes to AI. At the time, we had a group of seven interns. Not all of our interns have been phenomenal, but this group of seven seemed to have more cohesiveness and excitement.

As a group, we had had in a long time. I think it was mainly just because there were so many of Them at one time, so I had an idea one day to instead of trying to get the management and leadership and then the rest of the team on board with using AI, I said, you know what, I'm going to go back to my desk right now. I use chat GPT, and I said, create me a contest for our interns to use AI, use you, the chat GPT, use AI to solve a business need in the department that they're working on.

And create rules around it. And we only have two weeks to do it, and they have to solve a deal. And I put that prompt into chat GPT. In five minutes, we had a contest on paper that, within the next day, we rolled out to the interns, and they had two weeks to complete it. We went through that process.

They completed an unbelievable AI contest, which worked very well. Still, the value thereof looking backwards was, and this is the part I was saying, I don't think I had thought this deeply about it, but it became super powerful to start with the interns looking backwards.

You start with the interns because if they can, show the rest of the company they could solve a problem using AI at an intern level. Then, I'm a person who works in the company or as a manager, and I'm looking for an intern to solve these problems using AI. In that case, it will make me want to get interested quickly because that could essentially be considered a threat to my job in the future.

And so what wasn't meant to be negative but meant to show what is possible, even if you're still in college, look what can be done. And so we took that concept and had everybody come in and watch the interns' presentation. So, the whole company watched the presentation of the interns.

And then, as we finished the contest, we awarded the winners, and they all were awarded something. Still, we awarded the winners and immediately rolled out the same contest to the rest of the company, except for the managers. Or the executives in the company. Every other team member was now participating in the same contest.

And you know they were now incentivized to do it, and they want to do it because they just watched all these interns do it and get rewarded for it. And so it became a potent tool to get everybody on board with the thought of AI, the ability to use it, and the willingness to use it.

Right, so it solved the willingness of an entire team not to be afraid to try to adopt AI. And it worked well. 

Chris Powers: Alright, two more. Team meeting structures. It is the first time we've talked about this. 

Jason Baxter: Yeah, this one, actually; we did talk about it this morning in the team meeting because I highlighted why this is so important.

Chris Powers: Yeah, you don't usually hear this on, like, a big team wins category about meeting structures. 

Jason Baxter: Yeah, and again, I got to give a mentor of ours and a great coach of ours, Lex, who has helped us a lot in the past, and hopefully, this year again, he's going to help me some more or help us some more, but, essentially, he helped us define a meeting structure for our executive team several years ago, which has turned is proven to be invaluable.

And we've gotten good at it. And it's straightforward. I will only go through some of the details of it. Still, it creates a structure that makes consistency, alignment and an understanding of what's going on in a company, a department, or any group of people. That conversation can consistently continue over time.

It creates a transfer of knowledge or shared consciousness, which we've previously discussed. So creating a meeting structure that helps the meeting feel continuous, and not every week we're ad hoc jumping from thing to thing, talking about something new, whatever you decide to bring in, what's in your world, lots of different meeting structures out there.

Many ways to run meeting structures, like level 10 meetings and other EOS structures, work fine. This structure is different and very controlled, but what it has done for us now that we use AI is creating a systematic way to talk about the company in meetings, allowing AI to listen.

So we record every meeting and then and not because we want to listen back to the conferences or judge people. It's not for any person to take advantage of. What it does is that the conference itself is structured in a way that the AI listens and takes notes and then creates value for the participants after the meeting.

Right? So, any Zoom meeting right now will take AI notes and give a good summary. But it is 10x more valuable if that meeting structure is consistent, repetitive and aligned with the order of the things you discuss. And it doesn't mean you don't talk about different things, but it means there is a series of things in your world.

As a, say you're a manager in a department, there's a series of things that you're going to touch on, and you may be some weeks you touch on some weeks you don't feel on them, but inside that structure that you're going to discuss are a series of things. The AI gets good at following the week-to-week.

And so you get a history of everything you've discussed in a meeting, not just what you've discussed. Everything everybody else has talked about. And so you can start looking back through your meetings by asking the AI questions. What are some common themes we've discussed over the last three months?

What are some things we've discussed that continue to come up? How could we improve our meeting discussions? Where are we wasting time? The things you could ask if the AI is listening to a consistent conversation are unique and have been growing over time. You get a good memory of everything you've been discussing.

And what happens with most meetings is a lot of bouncing around from one week to one week. Somebody takes a vacation; you take a vacation, and sometimes you get off track. All those things break down over time. The efficiency of what you're trying to get out of a meeting what this does is to keep it on one track forever.

So, the structure was one thing. But it's the structure combined with the AI. And then, if you take that structure and go, what's essential about the structure? We're from a data standpoint because it's structured; we are recording it, but that also goes into our database. Not only does it know the consistency of the discussion, but those meeting notes are also connected to our AI, which knows everything about Fort Capital, what we're working on as a company, our goals, and all the outstanding jobs.

It knows everything, all the data that's already in our system. So you could say. How well did this meeting align with the things we say we need to get done? And it will tell you, it will tell you, here are the things you discuss that are not identified as objectives in the company. No one's working on them.

They're not on anyone's job list. What you get when you do things repetitively like that and have a structured way you meet is impressive. So it's one of those things we talked about this morning. It takes a lot of work to measure the value today. But if you see the results it's already producing and you fast forward, that will be invaluable. It'll be the standard of how people take notes.

Chris Powers: Is this something that eventually becomes like, oh, everybody does? It is how meetings will be run in the future.

Jason Baxter: Here's an example of something we're doing right now because of how valuable this already is.

We have a great, you know, zoom meeting room, all the, you know, we have a Zoom setup, instant create a meeting, people call in standard stuff. But what we find is what, where's the real value? The real value is the quality of the meeting notes. So, if we're talking about the quality of the meeting notes, we're not talking about a human.

We're saying the quality of the recording. If we're telling the quality of the recording, we're saying, well, how do we know who's talking? The AI is good at that, but how can we improve? How good is the quality of every word that's said? So now we're focused on improving this process by setting up every meeting room with a microphone system so that everyone has an assigned microphone so that those notes are perfect.

There is clarity ever about who said what, when and how the conversation went. If two people are talking simultaneously, it won't matter. If somebody interrupts somebody, it won't matter. Those little things will significantly impact the future because you'll have clean notes. 

Chris Powers: Okay, then that's a perfect time to lead into, and if anybody's listening going, Chris, say something. It's just been Jason. Don't worry. My time is coming, but it won't be on this one. We got to wait a little longer. You keep saying, ask our AI. Ask a question to the AI. I mean, you're going to ask this question.

So, we're clever at Fort. We have FOS, which stands for Fort Operating System. And so it would only be fitting that the AI we built was named Foster. 

Jason Baxter: Got to give credit where credit's due, which is Hannah's idea.

Chris Powers: That was Hannah's idea. Hannah has had many brilliant ideas, but this is one of the best.

So FOS had a little child, and that little child's name was Foster. And we touched on it at the end of last year, but it was more of a concept. Here's what we're thinking might happen this year. And I even remember a meeting; it was that long lunch at Shady Oaks for four or five hours.

And how can we incentivize? What are we incentivizing? How are we moving the same forward? Let's talk about what's been built to date. And then you can do some forward-looking like what might also look like heading into 2024.

Jason Baxter: Yeah, I think we were trying to, we were kind of, not beating around the bush, but we were being a little bit cryptic the last time we talked about this because there were things that we had ideas about, but we, we didn't want to let the cat out of the bag too soon. I think we thought maybe we had, we didn't want to give people other ideas, but we're so far into it now that the things that it's doing, I'm happy to say, because I think it's super valuable, and I think other people should be working on it.

And if they can figure it out, more power to them, but what Chris mentioned is, yes, we have built our AI. And so what does that mean? It means, you know, you have AIs that are available to anyone right now, which everybody knows chat GPTs, the big one where it's just a large language model that you can access and ask questions.

And it's very good at predicting what should come next, the following language, the next word, whatever. And it's good at connecting concepts. You can give it several ideas, and it can combine them very, very well and give you good insight and feedback. We took that same idea.

But when we talked about this, the future would always be: how can a company do that with their internal data without putting it in a public setting like Chat GPT, where you have private, proprietary, sensitive information you want your team to access? That is the problem we've been working on for the last Six or seven months, a little longer than that.

Now, we've successfully built our version of that. So we have, we started with building a corpus of data, which we already had an excellent clean database, but what we did is we said, we're going to develop a subset of that database, which is a corpus of everything we would want an AI to know about for capital.

So, we start putting everything you can imagine in this corpus, such as cultural information. Who are the people? What's our mission? Who are the people? Like, who are the people? What are their names? What are their positions? What are their job descriptions? What are their job responsibilities? When did they start?

What is their birthday? What's their favourite book? So, we already have everything about them on file. 

Chris Powers: What about the culture index? What are their personality traits? 

Jason Baxter: What are their personality traits? What are their strengths? What are their weaknesses?

So then, it's because we can help the AI understand what those strengths and weaknesses are. And I'll get into more detail about how it already knows that; we give it all the information we know. So, it has an excellent understanding of, say, a person and an excellent knowledge of Fort's mission.

It has our flywheel. It has our mission, purpose, and everything we have as documents, but it also has the transcript of every podcast we have recorded. It has every annual letter that we've ever put out. It has. We have all the information you could imagine on Fort, which is why things like this have been so important.

It has those as a back, a framework of understanding as an AI. So, you start with this corpus, and I could continue. There are millions of pieces of data in there. And so we started with my goal with the tech team, which was to first sort of strategically guide them by saying, let's begin by first solving the culture, the culture agent.

So, every AI is essentially an agent. You ask it a question, and it helps you find the answer. So he said, let's start by building the corpus around culture, people, and team. Put our goals, OKRs, and what the people are working on—all those things. Let's create a tool that is our AI like Chat GPT, where if I'm an employee, I can ask a question, and it not only knows who I am, what my strengths, what my weaknesses are, how I communicate, how it should speak to me because it also knows how to communicate to you.

It also knows. For all the jobs you're working on, see how those jobs are connected to our OKRs as a company, and it knows how to help you stay on track, or it can answer a question about what you're working on and how it impacts the company. For example, this morning, we showed the team some of the things it's done where a team member could ask Foster. I just got to work today, and I'm still trying to figure out what I should work on first.

Foster, what do you think? It will give you a beautiful summary of why you should work on certain things based on your job description, your current outstanding jobs, which are past due, which still have time, and related to company OKRs that have a more significant impact.

It knows all these things so that it can guide you. It doesn't mean it's the only answer the person should follow, but it will get you on track quickly. And so that's just the tip of the iceberg. I mean, we're just talking about, this is the very, very basics of what it can do, but what it's, what we're going to start it with when we roll this out to the team, in the next quarter or so is to give them a tool to have quick instant visibility and access and support on everything about their job, but from an agent that knows who they are.

One person might be a person who likes detail or likes quick feedback. It would know that through the culture index based on the dots. And this is where it becomes mighty. You say that's cool, it's got all your data, but how does it have other information? Our AI is connected to Chat GPT's large language model and six or seven other best open-source large language models.

So, our AI can tap into many different large language models with massive amounts of public data and data sets, All kinds of things, so that we can ask questions about internally what's happening at Fort while simultaneously having all the data of the outside world combine to get the best answer.

And so, I don't know where other companies are, but no other real estate company like ours has announced they have anything like this. And so we have an advantage, a slight lead, and we'll tell and show some of what's happening in this world in the next few months.

Because it's important and people should know about it. Other people should be doing it, and we want to learn more. So we want to know if other people are out there doing it. We don't think that other people, like no one else, will do this or are not doing it.

Other people are going to do it. But we are going to be showing. What we're doing, how we're doing it and where we're at because it gives us a market advantage. 

Chris Powers: There's like a million things we could dig in. The one thing, and you were, you kept hitting on it, but I'll make it a little more straightforward to listeners, which is how people like to be talked to.

So, yeah. For listeners in the same situation conveying information, I like to see it in five bullet points; each bullet point should be as short as you could write it. Some people want that same information in lengthy paragraphs with tons of detail.

I find that offensive; it's irritating, so it knows who you are when discussing communicating. It will present the same information to different people in the company based on their preferences of how they best take it in. And then some of my features, which are probably the most basic, and probably any company could have this, but I still like it, or hey Foster, how many deals are we underwriting in San Antonio right now? Oh, it automatically tells you 12. to dig through dashboards and figure it all out. Or how many leases are outstanding? How many are in LOI? Hey, can you retrieve the survey for me for one, two, and three Hempstead Hill instead of going and digging through files for 30 minutes to find it?

It'll just pop it out there.

Jason Baxter: So I need to remember some of the most basic stuff, the most basic. 

Chris Powers: But if you're listening, there going, and we've always talked about this efficiency. A lot of companies, like, there's the chicken of every company, which is the stuff we all deal with.

There's the cool stuff that each company has, but like, anybody listening to this, and every time I mention this to people, I'm like, how much time do you think your team spends digging through Dropbox every year just searching for a file? Collected across all the team members, times all 300, how many hours?

And now you'll just be like, yeah, find me that one thing in our deal or that one line item of data I need. The only thing I was going to say is. Then, AI improves itself: Why are 30 people in the company asking for this one thing?

It should be on somebody's radar that these types of information are constantly asked for.

Jason Baxter: Oh, the inefficiencies get highlighted quickly using AI, an example that we're using right now, which is impactful, which is piggybacking on what I was already saying, but it's probably a more straightforward example.

It's similar to what you were giving us. If you take those meeting structures we talked about, you accept the notes out of those meeting structures; let's say that's a manager that has a meeting structure like that. And his, the team of that person has many things they're working on.

We call those jobs. Let's say they have a bunch of jobs. And those jobs are parts of more significant projects. So there's a more extensive project broken up into smaller tasks, which we track through our system called jobs. So, all that stuff is in progress, but I'm a manager, and I've got to prepare for my meeting.

And I've got to come into the executive team. My job is to give a five-minute quick update about my team's progress, what happened last week, what the priorities are this week, and any support or hurdle requests that I have going forward as a manager, right to an executive team. Every manager in that situation has to be prepared every week when they come in.

So they have to look through their team. They have to have good conversations with their team. They've got to be tracking everything. They got to go in FOS and look at everything. That's what happens today. We have great dashboards to show much of this, but how is AI being used already? Greg, our executive vice president of technology, because he was the one that did it first.

He uses Foster to say, Hey, Foster. And he's created his prompt where he'd, all he has to do is regenerate every week. He says, Hey Foster, please give me an update on these things from my team with details about where they're working on and in the progress. How that's tied, which company OKRs it's connected to and what we should work on next week to keep the ball moving forward.

Are there any issues we should be aware of? And, over here, on a separate page, create a table of all the jobs completed this last week. And he generates that at the push of a button. So he doesn't even have to do it in his weekly meeting.

He walks in, and he smiles every time. And he's like, this is everything we did last week. It is what the team's working on. It is what we should work on next week. And this is how it's going to impact the company. And a foster generates that for him. And you go, well, How can you trust the number one question people will have? Listening will be, yeah, but how do you trust it?

How do you know it's right? All that work has been done long ago by creating clean data. And so, what it does is way more powerful than an individual trying to go back and figure all that out, put all the pieces together, make the notes, come in, and try to be so prepared. We are intelligent as humans, but we cannot keep up with that amount of information, even if we go back and work hard to get it.

But we can't connect the dots the way I can to say that we completed these three jobs better. Did those move the ball forward? Did they do it without being objective? Or subjective. Our thoughts more influence us. AI is not; it would look at those and say, no, those are not tied to a company objective.

They're not moving the ball forward. Therefore, yes, you did them, but you did not have an impact this week. That's what you get from AI. You get the real meat of what's happening, not just the fluff. As a manager, you don't have to worry about whether you are getting stuff done.

Are we impacting, or is my team just working hard, but we're not moving? And that's what happens in a lot of companies. There's a lot of busyness. But is there movement? And so that's what AI will have a significant impact on.

Chris Powers: Do we have just one example?

It could be like lease abstracts. We talked about invoice parsing, which is through AI. Still, a real estate person listening would go, like lease abstracts, which is always the one, but what's something besides invoices that we've substituted with AI to where tons of human energy is?

It's not going to have to go into it anymore. I mean, the legal documents.

Jason Baxter: Yeah, the list is endless. But many basic things are repetitive. That you would typically have to go back and manually do; legal's one of them. There are a lot of things that we have to update or check.

Or, find in legal that we no longer have to do. Um, you can ask questions; you can find information. It's like what you were talking about with the document or with the finding documents; you can also find information. You can search leases by just asking questions; great questions.

I mean, there's, this is, the craziest part: it is endless. Like everything that you could imagine, you can do. The problem is most companies need to start. They can't even imagine everything that once you reach a point, say where you are. Suddenly, you begin to see, Oh, my gosh, everything's possible.

You could keep stacking them on endlessly, so I'm curious if something significantly impacts leasing like you're talking about a broker. So lease abstracts or, here's one most miniature last, abstract, an easy one.

We can abstract any lease; we scrape all the data out of it. We tell it what we're looking for. It gets good at understanding it, looking for that information and scraping it out. That goes back to the document parsing. It's the same thing. So that's another thing you realize when you get deeper into AI.

There are a few big things that it does that you can apply broadly. And it solves lots of problems. It is more on the acquisition side. So, acquisition notes. So, as we collect feedback on properties and notes, we're starting to analyze the likelihood of a transaction.

Or we're trying to determine if there's real progress being made on a transaction, on an asset, we're tracking, we're sending an LOI, we're negotiating. What you start to see are the meeting notes. You get a track record of communication. You begin to see a trend, and the AI can help you move and rank the deals that are moving in the right way based on the conversations being had.

So you could start to see what's real and what's not without having to go back and go, Oh, what was the last conversation on that deal? Didn't that guy say he might be interested? Didn't he say he would consider it if we sent him an offer for X? You don't have to do that if those notes are being tracked.

And sometimes, we get those from a third party. So we're getting notes from people. We don't have to ask them what we should do next. We start to gain influence or get feedback from the AI to help us decide what we should do next.

  Chris Powers: All right. Well, you mentioned acquisitions, and it would be a good time to talk about our pipeline.

In 2023, we purchased just under a hundred million. It was three deals, but one of those was a carryover from 2022. Two deals generated 23 with a closing in January, which was we raised 41 million, a little under 700 000 feet, which, if you go back and listen to our 2018 episode, would have been a dream banner year.

It was a slow year, but it was a slow year for the right reasons. We were given what the market would bear, which was a little.

Jason Baxter: And we were being super patient. The key is that it was strategic and a decision we did not pursue. We would have followed almost anything when interest rates were low, not because we didn't think there were still good deals or potential future opportunities.

It was essential to wait and see what the market would do. That was the wisest decision we've made because we discussed it initially and how it gave us the time to hyper-focus on improving everything across the board, including our current portfolio and how we operate.

But the decision to do it was more an internal one, not all driven by the market because we saw a ton of deals and opportunities that we chose not to pursue. We would only stretch and try to make numbers work on something, so it was a very strategic patient.

Move for us to wait and see what the market did. And now, we're seeing it come back to us slightly. 

Chris Powers: And our annual letter will be coming out on February 5th or a little bit behind this year, but we wanted to make sure it was super dialled in, but some of the data that we pulled from that, and I think this is going back to, you know, why would you be trying to raise four to 500 million of committed capital?

There's 27. 8 billion worth of property that we've identified in markets that we want to be in that check the boxes that, in theory, if a seller was willing to sell, that's the total kind of market size that we're going after. And again, you ask a lot of people, and they're like, well, we're an industrial.

Do you even know how big your market is? Not really. Do you even know which buildings you would buy? Or are you like cold calling addresses that, you know, you Googled? So that's the total size. And so within that, our goal isn't to have all of them, but it's always to have a certain percentage of it, call it 10 or 15%, which could be more realistic.

And so we've identified 2 936 portfolios, encompassing 14 100 properties, leading us to 520 potential deals. And a possible deal is something with a reasonable chance of happening in the next 12 months.

Jason Baxter: That yes, and that would be 12 to 18 months. We track out a bit further than that, depending on the asset.

But what we're done with that final number there is we've ranked all those buildings or all those properties, all those portfolios to come up with what we think is the most likely, not only the most likely but which ones are the best. And so we've narrowed those markets down to be what we believe. Not only do they give us the best opportunity to complete a transaction, but they're also the best things we would want to buy.

So, we focus on only what we think is authentic and will match up with our return requirements because we are not interested in just going and buying deals. We need to determine which are real and which ones we believe will align with our investment thesis and provide the returns we need to deliver.

Chris Powers: Well, the one thing to give more clarity on is when you say 2 936 portfolios that we often get a lot of; hey, explain what that means. You could go into FOS maps a little bit or some of the technology just there that is more just saying. Most people would look at a list of buildings and go, Oh, that owner owns one building, but we've tried to do one because something you have to know about our asset class, the individual deal size, if you're buying a building, they're usually pretty small, right?

And the further you move up the chain. Either you have to buy a vast building, which there are few of, or you need to purchase clusters or groupings of buildings. It was also one of the impressive things we discussed last year. Still, it's now really starting to play out, is where we can see a bunch of buildings that, if you just went through the legal records, would look like owned in 10 different partnerships or even co-star, you can start seeing, no, there's shared ownership.

I am one owner, so our maps show us these significant groupings of buildings. On average, I would see one building per owner.

Jason Baxter: So FOS maps are what you're referring to, which we talked about in previous episodes, but our FOS maps are really a visual tool of the data that we have behind the scenes and then what we can do with that data, we can look at it anyway we want through the maps, correct?

And the maps give us quick access, visuals, and quick ability to update and follow up. And so, it becomes invaluable to see the world through your map. But the portfolio view is something that we realize when we talk to equity, the markets, and brokers, and you often do get that pushback.

Well, there's not a lot, but a lot of more significant deals out there. And when discussing more significant deals, we're discussing something other than the multi-hundred-million dollar deals. Yes, those are out there. They're friendly, but those portfolios have already been aggregated for that reason, usually owned by institutions.

What we're talking about is instead of looking at a. You know, a 100,000-square-foot building. Are there six 100,000-square-foot buildings that might have common ownership that otherwise can't be seen right? And that's a rough example, but that's what we were trying to figure out. And it's tough to see that through any data set that's out there publicly right now.

So what we did was we took all the data that we could combine, and we used some exciting partially AI machine learning tools, and our team did a brilliant job here. They Came up with a process, and it's in our annual letter. We talked about it briefly, a similar similarity matrix.

So, it's based on this fuzzy matching principle and then a similarity matrix. So, it creates behind the scenes. The computer is looking at a million pieces of data and figuring out where there are similarities across a property from one to the other. And what it's able to do is figure out where there is a very, very strong likelihood that the same people, person, entities, whether it's multiple or not, There is some commonality somewhere behind the scenes that we can't see that make this a potential portfolio that other people don't know exists.

It has proven to be very accurate, and there are ways you could do a lot of research and figure out where individual portfolios exist, but to see the whole world like that in an instant is very valuable. And so that's how we've spotted so many opportunities out there.

That way, we can target slightly more significant opportunities than the average investor in a local market while still finding smaller opportunities than giant institutions. So we're seeing that middle ground of deals worth our time. So call it 15 to 50 million and some plus some, more extensive and smaller than that.

But we're able to find these in groupings where. We can go pick up a portfolio of 5, 10, and 15 buildings that others might need to see. 

Chris Powers: All right, we've talked about the pipeline. Two exciting things that came up in our annual letter are under the section on profitability, which is a vital part of our flywheel.

But two things were interesting, and one of them is called dynamic interest rate stress testing. What is that? 

Jason Baxter: So it's like when, back when COVID hits, there's things that. You automatically realize you could get way smarter at it, right? And in COVID, we immediately, within months, we said, you know, we need a rent relief process.

If somebody asked for rent relief, what are we going to do? So we built all these things into our system to prepare us to deal with this again. We did not have to do it, but it got way better because of COVID. When interest rates started to move, and the debt market started to tell us what was required in the future and how the world would look, this is back when they were going from four to four and a half, four and a half to five, right? So I'm talking at the very beginning, we started looking at that world and looking at silver caps and reserve requirements and, you know, the future need, uh, potential.

Then, we started looking at the forward yield curve, which moved quickly. As everybody knows at this point, we decided pretty early on that we needed to have a dialled process built into our the way, not only that we underwrite, but the way that we forecast and not just rely on an analyst updated every month, but how do we make it dynamic and how do we make it live and how do we make it a part of the performance of the asset daily?

Right, we signed leases. What's the impact on cash flow? What's the impact on our yield? What's the effect on our debt service? What does that do looking forward? Are we going to hit a moment in time in the future? If rates keep moving based on the yield curve, will that impact the ability to execute this asset?

You want that baked in. You don't want to have to think about it. You want it to be a part of your observation at all times. And so what we started to do is redo the model in terms of our forecasting models that we use and, uh, Make them more real-time by updating a process in our accounting software that we use by doing market profiles Where instead of looking at an asset whole like as a whole We broke it down literally suite by suite. We now require the leasing teams to update the likelihood of a lease of every suite every month.

Is it going to renew? Is it not? Did we sign a new lease? Do we need more downtime? Do we have enough downtime? Do we have enough TI? Are we going to need more CapEx? All those numbers are baked into the long-term performance of an asset. Looking forward, we update those every month, suite by suite, with 1900 suites.

And what that allows you to have an accurate view of your asset at all times, most likely looking forward to the next two, three, four, five months. And it could be longer depending on what type of leases you have in place. But it's looking forward, and then, In the model, you can build in the Ford yield curve in the active cost of those rate caps.

If you assume you have any, you can bake that into the cash need of the asset right then. And so it's dynamic. So if any moment you are looking forward, and you have an outlay of cash coming from a bank requirement 18 months from now. That will start reserving the day that your asset isn't on track to have enough money to do that.

And so what that allows us to do is not think about, are we over distributing or under distributing or, do we need to push rents or do we need to let off a little bit and sign more leases or whatever the thing needs to happen at the asset level? We can see clearly because a real-time view is baked into our long-term forecast of what that asset will need from a debt perspective. And so, we're trying to get hyper, hyper-smart at being able to look forward and plan for the worst-case scenario but operate knowing what's happening today. 

Chris Powers: All right, and then on the backs of that cash reserve management, I don't know if there's anything else to add. 

Jason Baxter: It's the same process. It goes just a little deeper, but what it allows us to do is the cash reserve side of that, so the other team's ability to know that. So from an analyst side, from an analytical side, we're able to give that information to the rest of the team, property managers, leasing teams right at the asset level so that they know how the reserves need to look at all times so that we're never, overspending or underspending on an asset when it's the right thing to do, right? So, it's allowed us to create reserve items and reserve line items for every aspect of an asset that we know is always accurate for future needs. And so we've broken that up instead of just having one big reserve bucket.

We know how much TI we need. We know exactly how much money we need for insurance, taxes, etc. We already had much of that, but it's broken up and tied. It's accurately linked to future needs, including that forward yield curve that we discussed and the potential of interest rates, which will be higher.

Chris Powers: How do you think most people are doing? 

Jason Baxter: I mean, I'm sure many people do it, so I'm sure some people are listening to this going, yeah, duh. But, it's not, and I'm not; we already did it, people that don't. We do know some people don't. They thumbed it, and we did it.

But what I'm saying, I need to be more clear on, is we tried to take it to another level where all of this is automatic. We do not have to do this as a manual process at the end of each month or each quarter. When we look at the analysis and distribute money, we go, Oh man, we're going to need this, or we're going to need that.

It's a part of the view of the asset at all times. And so we can see if we're where we need to be. Anytime we look at the asset, that can be every day.

Chris Powers: We'll get into the 2022 24 outlook in a little, in, in just a second, but I want to highlight the team for a bit. And in a year where you saw a lot of people contract, we expanded.

We added 11 new people, bringing us to 54 total people, 55 now. It's changed 55 here in the States, and we have an excellent team in India. I'll do a quick shameless plug. Check out Relay Human Cloud. That's how we used to hire. And they are phenomenal. And our good friend runs that company, and we've helped many other companies get on board there.

And we can't say enough about our India team. We opened two offices, Houston and San Antonio. So that brings us to four total. We have Fort Worth, Dallas, Houston, and San Antonio, and we talked about this last year, but we had people go through it this year after a lot. I am figuring out when to prepare and get all the material over a year.

We launched Fort Capitol University this year, and we've had 17 people graduate from it. And if you want to highlight what that experience was like, I know we did multiple training sessions.

Jason Baxter: Yeah, we have two versions of it. One is for the executive team. So it's a slightly higher level of executive and leadership training, a more intensive four-day program that is very in-depth, hands-on, and interactive. And so, lots of excellent, not only teaching, but a lot of, team building within that strengthens your ability to be a team, especially of leaders and managers. Then, we rolled out a second version, which will always have these two, which both incorporate leadership and management, but at all the managers in the company.

So if you were responsible for managing anyone, even a person, you were required to go through this, which was a two-day management program, which allowed us to align how managers see the company for one and understand that we all have a shared responsibility and that we all have some foundational ways that we should be thinking about managing our team so that we create consistency across our different teams and departments.

And so, over time, that becomes invaluable because, you know, people might move from one team to another, people might grow what if God forbid, a manager might have to leave for some reason, or they might move to another city. you want to have consistency in there, and especially in your management so that it's not a shock to the system if someone if there's a change.

And so we worked hard to give the team tools and ways to think about capital and how we manage it, as well as some basic understanding of the importance of communication and all sorts of great leadership tools. But we were looking for consistency across our leadership and management.

Chris Powers: Let's talk about D-looking 2024. And I think to set the tone, I think it would just be necessary to revisit briefly what our strategy has been, how we've thought about it over the years and Really in a good way, like remind people that not a lot's changed on the thesis.

It's still every year; this may be the year. It doesn't fit this box or that box or this box. But every year, the same core tenants seem to become stronger and stronger. And so if you've listened to this podcast a while, you've heard us talk about some of these things, but I think we'll go over them at a high level, which the first and foremost is, we still have not seen any evidence that at any scale that could put a dent in supply that this asset class is getting rebuilt. Some people will say, " " Oh yeah, well, we see them getting built. And what they're saying is on the outskirts of town. Or in suburbs of a significant market. But remember, the stuff we're buying, we call it inside the loop of these major metros.

So, if you look inside the loop of these significant metros, I'm saying something other than that zero square feet have been built. There's been a onesie twosie here and there. But we also like to remind people that a lot of this stuff is also getting depleted. So it's either being converted into higher and better use or being torn down altogether.

In Texas, we've often said it's an annual 1 to 2 per cent decline in the inner city. And that carried through 2023, and we don't see any evidence that would stop this year. Why are big pieces of land not priced affordably for construction costs while they've topped out?

They're still very high. You have tenants who will only pay a little more for a brand-new building. So even if you could get a new building, is there genuine demand for it? And cities don't want them. And you can't go vertical with this stuff.

We added this to the thought process, but you can go vertical with almost every asset class. You see self-storage buildings now four or five stories high, multifamily; they built towers and offices—even some class-A stuff. We even saw some class A stuff, not in class B.

Even in retail, you can go two stories high. So maybe not that much higher, but still. and so you're not at, there's no threat to, oh, well, they'll figure out how to build it on smaller pieces of land and change. The tenant demand continues to grow, and they're also sticky to the building.

So, as you've heard me say in the past, if you're in a class B apartment and you make more money, you move to a class A condo or a house. If you're in a class B office and you make a profit, you move to a class A office building. If you make more money in class B industrial, you don't go into class A industrial; you grow within it.

Another interesting point in our tenant survey this year was that over 60 per cent of our tenants thought they would expand in 2024. The deal sizes are small on a one-off basis, so it keeps the big institutions from competing on a one-off basis. But that gives companies like ours considerable opportunities to put together portfolios, and some premiums are paid if you can put it all together and sell it upstream.

Last mile locations. Every bit of data we have in the previous mile matters more in 2024 than in 23. And that trend is going to continue. The amount of technology thought and process going into how to get every last drop out of the previous mile continues predictable expenses. 

Jason Baxter: That's huge, it's enormous.

Chris Powers: For almost every asset class, especially on the commercial side, TI packages have gotten more expensive, and the design requirements are higher.

Jason Baxter: Even the improvement costs, just the improvement of a building. 

Chris Powers: Yeah. Correct. Pretty minor. Our tenants, no matter what market they're in. Mostly, they require the same TI; they need a very functional office with paint and carpet lighting.

They need a warehouse that works, but they don't need it. I think what we've said in the past, really nice marble or platinum toilets or something crazy, is that this is a function of how your business operates. It's not something to show off to people. And that's why you can't say, Oh, well, in southern Florida, they do it differently.

Virtually every market we look in, it's the same. Then, on the capex on the exterior.

Jason Baxter: That's where there's a little value there, obviously, that's why we buy them to clean them up, professionalize them, make them more attractive, but it's not a massive gap of where you need to take it from where it is from a cost perspective.

And so that's where the real value is. You don't need to spend millions of dollars to make these buildings look good.

Chris Powers: If design and art are essential to you, This is not the asset class for you. It is more about function. We want our properties to look great, but I see some multifamily deals and office and retail.

And the type of architecture is unbelievable.

Jason Baxter: The requirement keeps growing, and all those asset classes. The demand is what it is, but the requirement keeps growing.

Chris Powers: So, 2024 Outlook is all those significant pillars of our asset class remaining intact. Market fundamentals will make it times more attractive than others to buy.

And so we can chat more about how we're thinking about the fundamentals of the market, which we predicate with the fact that we don't have any genius idea that this is not rocket science. We're in the market every day. We're taking what we know day by day. We have excellent networks and people to talk to, but I can't tell you what will happen in 24 hours, just like everybody else listening.

I know, but the world is wild. One theme we should discuss is preparing for higher rates for a more extended period. 

Jason Baxter: It's stable at a higher rate than they were historically over the last call it a decade.

Chris Powers: If we were making fun predictions, I would be in the camp that there will not be six rate cuts this year—maybe three, maybe two.

Jason Baxter: Yeah. I'm in the same camp. I think the best bet is just to be conservative. Plan in your underwriting or forecasting that rates will stay elevated but might retrace a little. And so what does that mean? Fifty lips, something like that. That's a conservative approach.

If they go better, if they go lower, great. You're in the wind, you're in the money, but I think the best bet is to be conservative because anything can change on a dime. 

Chris Powers: From a deal flow perspective, we're looking at a lot; the sentiment is we'll probably go under contractor contract on things, but the second half of the year will likely be busier than the first half.

Jason Baxter: I would agree, and a lot of that is also aligned with our, what we talked about in the very beginning with our capital raising and structure that we're hoping to put in place in the next few months and being prepared to take advantage of opportunities, which we think are coming, I think we do believe that there's been some, some dislocation and some, sort of.

Weeding out of it, whether it be certain operators or investors who just went through this cycle and are maybe getting squeezed a little more than perhaps a group like ours is, as well as people that missed the top right, so that you, you have to remember there was a lot of people buying into the top.

I wish they would've taken advantage of it, which they don't have. The operational proficiencies that every group we like to focus on need to sell as a part of their business plan. Their whole business plan is to buy, add value, and trade. Now that the market is stabilizing a little bit with the prediction that rates are going to come back a little, and the market is Opening up a little bit, there is an opportunity for sellers that are out there to try to capture that moment and potentially sell those assets less than they could have said a year ago, but still at an attractive, at least in our asset class maybe not so much office, but, sell those assets.

Now, there's a ton of that opportunity coming. And so we'll be paying attention very closely to that. 

Chris Powers: Rent increases will normalize. So we saw 16 to 20 per cent rent increases across the portfolio in 2023. 

Jason Baxter: Yeah. And I mean, it's as high as a hundred per cent. It's a vast range of swings over the last two to three years, which has been crazy.

Chris Powers: You'll start seeing it as a regular back to a more normalized growth rate. 

Jason Baxter: Yeah, we're projecting in all of our forecastings, just standard historical rent growth, meaning historical looking way back, so, you know, the usual 3, 4%, you know, we judged that closely based on specific locations and knowing what's going on, but we're also trying to be very conservative in that in many cases, we're still achieving above that type of growth, but looking forward, I think the trend is 100 per cent going to be some normalization in the short term.

Slightly longer term. We're still everything you said that we believe in the asset class. We will see another ramp-up because there is still a spread of what is being charged versus what the market Transcribed, especially the tenant base, could and should pay for these locations and these assets.

And so I think you're going to, and they're not building any more of it, I think you're going to see some, not in every location, but like in many asset classes, in the best locations, there's a lot of room to run with rental rates. 

Chris Powers: If you had to guess what market you think will be the next market we're still in, what would you say?

Jason Baxter: Our focus is to expand our markets, mostly San Antonio; DFW is our backyard. So if we can find good opportunities here, we will always look for them. Our next opportunity that we're already in besides Texas is Orlando, which we're in, but it has been.

An outperformer by far, it's an unbelievably strong market. It's very competitive. It's tough to get into; we were working on several deals there right now, which we were hopeful would come to fruition. But, that market. It has a lot of the dynamics that we look for, so that's a key focus, I'd say, from a new standpoint, brand new that we're not in yet, but we've worked very hard to be in as the Atlanta market Um more in Tennessee the Nashville market Beyond that would be the Carolinas market. Still, we have so much opportunity between San Antonio, Orlando, and DFW; another market we've attempted many times but have yet to enter is Chris's hometown.

Chris Powers: I thought you were going to say that. 

Jason Baxter: I always, Hesitate to mention it because it's so damn hard to get into. It's just a tough market. It is. But it's such a great market. And I think the growth there will be insane over the next decade from a distribution and, you know, supply chain perspective.

And so, obviously, there's a ton of opportunity there. The people that focus on the land side will likely. We don't do that. So, we'll find an opportunity there. I know Chris has got so many contacts there, eventually we will, but yeah, so we've got a lot of target markets and a lot of opportunity, but what we like to do is not spread ourselves too thin and think we're just going to go buy in every market.

We focus on the markets where we have opportunities that we're already in. I want to get those markets to scale because there's plenty of opportunity there. And if you don't focus on it, you won't get it. You can quickly start focusing more on a new market you're not in yet and miss out on opportunities in a market you're already in.

And so we first want to focus there. And at the same time, we're always looking at and trying to find opportunities in the markets I mentioned. The next one will probably be in Atlanta, Nashville or the Carolinas, but if I had to bet, it'd be Nashville. Atlanta has a brand new market.

Chris Powers: Well, 2023 was interesting. I'm excited for what 2024 will bring us. We have so many positive things going on. A is a part of the business I work on the most. And I'm excited about what we have going on here. I'm excited about working with new partners.

And if you're listening to this, and like I said, and you want to learn more about what we're going to do in this fundraiser, We would love to chat with you. We have a massive pipeline, you know, we're talking about the following year, but we think of things in decades. There is a vast, tremendous opportunity in front of us.

Again, after 2023, the foundation's been built, and the building blocks on top of it are to scale this company meaningfully and keep in touch with the number one goal. Excellent returns to investors and everybody that works with us. So thank you for the sixth time you've participated in this year-end review, and let's make it happen in 2024.

Jason Baxter: I'm ready. Let's do it. 

Chris Powers: I hope you've enjoyed this episode of the Fort podcasts. Follow us on your favourite podcast platform or hop over to YouTube to watch full video episodes. If that's what you prefer. For more information, you can check out thefortpod.com