#293 - How Fort Capital Executes World-Class Property Management

Chris Powers: All right. We are excited about today. I've got Jason and Steve with me; Jason is my partner and our CEO, who you have heard from many times. And Steve is back; He's our executive Vice President of Property Management. And today, we're going to talk about how we execute property management at Fort Capital and through our subsidiary FCP; it's become a staple of our business, something that's critical to our success, and we want to share how we think about it, how we think we're improving this side of the business and what it means for investors and folks that work with us.

So thanks for joining me today. 

Steve Bailey: Thanks for having us. 

Jason Baxter: Yeah, thanks for having me.

Chris Powers: I'll start with how we got into property management and why we decided to do it. It was only sometimes something that we did.

Steve Bailey: Yeah. So several reasons. When you look at our flywheel at Fort Capital, The center of that flywheel is to be the best real estate operator in the world.

And so when we have lofty goals, we're continuously improving, finding ways to improve, identifying areas that we can be more efficient, and property management was one of those areas. We identified gaps in some services we could improve significantly. So that was the underlying reason.

And then, several ancillary benefits come with creating a new sort of business unit in property management. And the thing that I'm most excited about when I think about why we brought on property management and the things we're able to do is growing the team. If you will, the property management division has been a superb vehicle in which we can grow our team.

So it's been great. 

Chris Powers: I love it, Jason.

Jason Baxter: Yeah, just adding to that, Steve hit on it. The flywheel that helps us drive everything we do at Four Capital. The last bucket of that is economies of scale. And as you grow a company and start to gain that economy of scale and have the center of the flywheel, the best real estate operator in the world, you inevitably start to take on these other parts of your business.

That's the only way you get better. You'll get better by watching someone else do it or, hopefully, manage someone else to be better, a third-party property manager. And so it was apparent, and we were chatting before this, about how we tried to bring this aspect of our business in-house.

Many years ago, even before Steve joined us, Chris and I were ambitious and ahead of the curve. But you realize that if you're not ready as a company, you don't have the resources in place, you don't have the scale going back to that economy as a scale.

You're trying to force something into the business if you need the scale. You're trying to make something happen that you're otherwise your business is still being prepared for. And then what you end up doing is you're hiring people. You need to have the resources in place, you need to have the technology in place, and you need to have the platform in place, but you need to be a property manager.

So it ends up costing you more money than you're making. And it takes a little while before you look up and realize we should be outsourcing this. And that's what a lot of people do. They think we should outsource all this. And for smaller businesses or smaller real estate firms that wanna stay small and focus on just the finding deals and investing side, that's great for them.

But if you want to be the best real estate operator in the world, You have to operate the real estate. Fortunately, we made the tough decision back then to cut bait and run. It was like 2016. And so we put that on the sidelines for a little while; we outsourced it.

We started buying all the industrial real estate in 2016 and 2017. We started to be able to watch how another third-party property manager managed our assets, including helping with the accounting side back then on just the asset level. And then we hired other property managers. So we had got the experience of testing it out.

At one point, we had three or four property managers third party, and we got the sense of How it worked and all the areas of improvement we knew we could do better. And so once we got big enough and had the scale, some good things did come outtaCovid, one of them being that it forced us to commit and go into property management more rapidly.

We already did it, but Covid allowed us to do it because we weren't buying a ton in those when Covid started. But we also needed to take that in-house because we needed to improve our business at that moment, both for revenue and at the asset level.

We had to control it. And so Covid ended up being a blessing, but, ultimately, it all boils back to our flywheel. Yeah, it was inevitable, It just took us time to get there, And now we've been in property management for, what is it, Four years.

Chris Powers: We had a portfolio of size to start it profitably.

And as you guys know, and anybody listening to this, trying to run a property management business on a shoestring or losing budget is extremely painful. And we didn't have this in there, but I just thought I would ask cause I think a lot of people can relate to this; when we had three or four third-party property managers, what comes to mind is some of the tricky parts about having lots of property managers, that stands out immediately where it's not all seamless.

Steve Bailey: I would say the—inconsistency in the processes. So you're dealing with four different groups, which have four different ways of how they like to do things. And then additionally, the lack of data you're getting from those four groups gives you a monthly financial package that says how the asset is doing.

But you're missing a massive opportunity when talking about getting to know the tenant base and the data behind the tenant. 

Chris Powers: And we'll get to data in a bit. What is the relationship between Fort Capital and FCP?

Steve Bailey: Yeah, great question. So FCP is Fort Capital.

It's the same, and in fact, we've invested the last year and a half, two years. We are dedicating people on the team to ensure that FCP and capital processes are 100% aligned. So we have a fantastic operations team, Andrea, Abby, and Shayna; we meet once a week and for operations check-in to go through some things we can improve on, process improvements, things that.

But the main objective of that meeting is to ensure that we're not running in two different directions. We don't want to look up in five years, and we have FCP doing—all of this different stuff than Fort Capital. So very congruent and aligned; those meetings have helped a ton. 

Chris Powers: I love it.

Some think property management is fixing broken things, creating maintenance, and collecting rent. But what's been our philosophy and business plan around ensuring that property management is more than that focused on tenant re-tenant retention, tenant relationships, and things of that nature?

Steve Bailey: Yeah, I always tell people I think of our property managers as, l almost like asset managers. And that's mainly due to the level of which they're dialed into not only the financials and the asset performance but the overall business plan of the asset. And so they're very dialed into what the strategy is.

And tenant retention is a big part of the game. That's the name of the game. We have to retain tenants. And so one of the cool things our technology team developed is that we have a dashboard that any of the PMs, anyone in the company, can quickly pull up. We can see what our expirations look like.

Month after month, 18 months out. So if I'm a PM managing Manana Plaza, I can quickly pull up and say, oh man, I've got three expirations in August. We must get with the broker. Let's start strategizing now, and then we can tag team that together through the PM and the broker.

Chris Powers: How are we ongoing, even when no renewal or something is coming up? What's our philosophy just on building great relationships with tenants? 

Steve Bailey: Our tenants must know who we are and what we are about. And it's actions over time, but I'm old-fashioned and firmly believer. And being present, right? So we must build relationships with tenants via email, text, and phone. The PMs must be onsite walking their vacancies, popping in, being proactive, and helpful. I was actually in San Antonio a couple of weeks ago, and our property manager down there, Misty, was so reassuring and validating, and it was great to see.

We were walking an asset that we have down there, and we were behind the building, walking up and down the truck court, just looking at things, identifying CapEx items that we were reviewing. And as we're walking down the truck court, literally every bay we walked by, like a tenant, popped out and, Hey Misty, how's it going?

And she's Hey, how are you doing? And that's what it's all about because developing those types of relationships makes those more challenging conversations much more accessible, If and when we have a challenging conversation with a tenant. They needed to know that something breaking in their suite was their responsibility.

They can have that conversation and trust you versus just getting some random email from a PM in an office that they don't even know or have gotten to meet yet. It's two different worlds.

Chris Powers: And that sounds like table stakes, but we found it with many third-party managers, and you see, they're so busy doing other things.

They need to remember to build relationships with tenants. Can we talk about, like, maybe some of the things we do that give our PMs the time to be onsite and be relationships, maybe some of the work that other property managers would be doing that other folk in the company at Fort are doing so that our property managers do have that time to be face to face?

Steve Bailey: Yeah. So we talk about our property management team, and obviously, you have property managers that make up that team, but it's so much more than that. So have a phenomenal lease administration team that handles 99% of the backend Yardi accounting onboarding. So the PM can use their time where it's most important: taking care of the asset, the customer, and collecting rent. So please admin team has been just critical. And then our technology team, I'm going to talk a lot about technology today, but the PMs' efficiencies due to the technology we've created in-house, things like an asset performance review.

So before having the asset performance review dashboards, it would take days to dive into the financials and review and find out what's going on. Now we can quickly pull up a dashboard with all the notes, talking about why the revenue is up, the expenses are down, and the overall effect on the NOI.

So anyone in the company can pull this dashboard up and go, oh, great. I see why the asset is doing what it's doing. It is awesome. So a lot of the process improvements that we've done, I've talked about the operations check-in, we've automated so many things through FOS, for example, when we have property onboarding, some jobs automatically get launched to various departments, all across the company.

And we have check-in meetings to ensure everyone's on the same page. Before having all of those jobs automatically, it was challenging to stay organized, and the PMs were spinning their wheels, quite frankly, on a lot of items that we just had to do a better job getting organized on.

Chris Powers: Okay, so I want to talk briefly about what happens before and after we buy. I'll brag on the team, but we're notorious for the day. We close; we're mobilized and ready. Closing differs from the first time property management figures out they have something to work on. Let's talk about how Fort and third-party clients might buy an asset.

What happens with property management once we know we're buying something to closing that gets property management ready for the day we take over? 

Steve Bailey: Yeah, great question. So the minute that we have a deal that goes under the contract that initiates our investment strategy workflow, so NFOS, dozens and dozens of jobs get launched to the appropriate players on the team transactions, property management, acquisitions, you name it.

So we all get jobs that outline what we need to do and what we're responsible for. We're slightly different because we heavily involve the property managers in that acquisition process. So they need to figure out what the asset, the tenant base, and the rent role look like the day after closing.

It's all happening 30 to 60 days before closing. So we also involve our property manager and the tenant interview process. So that is two things. A lets them get to know the asset and the tenant. B does some fact-finding because the acquisition guys will be asking tenant interview questions utterly different than the property manager will be asking, right?

So the property manager wants to know, Hey, have there been any issues at the property that we need to be aware of? What do you like about your current property management team? What do you, not like? How do you like to be communicated with? So we're getting this valuable data 30 days before closing or so.

And so once we were physically close on the asset day one, it was a manageable task for the PM. Oh my gosh, I have to meet all these people and figure out where it's at and where the meters are. We've been doing all of that before close. 

Chris Powers: Okay. And then closing day comes, and we could do the first 30 or 90 days. What happens the day we close? 

Steve Bailey: So day, we close day one, property manager onsite, and we are going sweet to sweet, and we are shaking hands. We are passing out business cards. We have two primary objectives on day one.

One is to ensure we get in front of every single tenant, and if they're outside their space, we have a contact list. We're texting, we're calling, we're emailing. Ideally, we're face-to-face, eyeball-to-eyeball with every single tenant. That's the objective; Objective two is to ensure the new tenants understand that we're the new property management company.

It is who to contact and how you now pay rent. So that's critical. We want to make sure that the tenants and most of the tenants, and that's their number one question. Who should I call to send my payment to? And so we get that lined out on day one while the PM is on site.

What is simultaneously happening? Again, automatically being triggered. We're sending automatic tenant portal invites out that go directly to their tenant's email, and we're also automatically sending out welcome letters to every single tenant. So while the PM is reinforcing all of these things face-to-face, they're also getting backup documentation that tells them, this is how you sign up for online portal payments.

These are the items that we're going to need from you. Things like an updated certificate of insurance, this is the PM contact info, So they have all that, So from the tenant perspective, that's day one. Then there's also the vendor and trade partner perspective. So we're meeting with all the vendors and service contract providers on site, ensuring that we get them signed up on our contract, ensuring they understand the scope, and vetting them.

Often it's a great opportunity for cost savings. So when we acquire, there's often where man, this landscaper, this contract looks high. So it's an excellent opportunity to immediately come in and start cost savings at the asset level, and then, The third component of that first 30 days, to your point of hitting the ground running, we have 99% of the time we close on an asset.

We have a pretty thorough CapEx plan, and that CapEx plan has been discussed. The PM's been in the meetings, and everyone is aligned on what we're doing, how we're doing it, and so it's really meeting with those contractors, meeting with the city, getting permits in place, and so that way we can kick off those CapEx plans right away.

Chris Powers: You said two things you said paying online is essential, and we ran a considerable initiative last year. Forgive me the name.

Steve Bailey: Yeah, that was the operation Paperless.

Chris Powers: And we talked about it at year-end, but the operation, is paperless. Can you describe why that came to be and why it has been so critical in executing that?

Steve Bailey: Yeah, Operation Paperless was an initiative we developed last year. For a couple of reasons, we started to see the need for more efficiency, whether it be US Postal Service, FedEx, or just mail. We had tenants mailing their checks on the first of the month, and they would get to us on the 15th, the 16th, or the 17th of the month.

So we've got a tenant saying, that's not fair. I paid, and I shouldn't be charged the late fee. And we're saying, but we don't have that money yet, and there was A little friction there. And then additionally, from an accounting perspective, I spoke with our director of accounting, and she told me that every time we have to process a check, it's a multiple-step process.

If the tenants paid online, it was much easier for the accounting team because it would automatically book that revenue as incoming. And this is an excellent opportunity to speed up some of our processes here. We decided to say we no longer accept paper checks or cash. 

So we're over it; 97% of our customers and tenants pay via the portal online. Due to corporate policies, a few folks physically don't allow them to pay on the portal. But, this time two years ago, that number was probably, 30% 

Chris Powers: And back to property managers having time to build relationships with tenants and be on site.

We cleared the issue; we found out that property managers spend two to three weeks a month gathering up, hunting down checks, and now all that time's returned to them. 

Jason Baxter: If you think about the world we live in, we will talk about technology in every meeting that we have, every podcast we do, we talk about technology, and yet we're still, on the other hand, talking about making a phone call on the sixth of the month to hear on the other end of the line the checks in the mail.

When we're talking about things like Cryptocurrencies that exist today, the contrast between this asset class and the reality of what exists in the world is just night and day. And so you, when you look at that, you could say that's horrible. That's a wrong asset class.

But that's a massive opportunity because most of this asset class is still managed that way. They still allow the tenants to do that. 

Chris Powers: This might be an easy answer, but I get asked that often people will say, we have tenants that say they won't do it, or we can't, like how do you all get people to do it?

And the answer might just be, that's just policy, and that's what it is. But how do we get people who would otherwise hesitate to do it?

Steve Bailey: So much of it is just explaining the why and the benefit to the tenant. So anytime we get pushback from a tenant that's oh, I don't want to do that, or that's not fair, it's like the first thing we do is, Hey, let's look up, I want to see the history of this tenant's payment history to see if they've ever been charged a late fee, 99% of the time they have.

If you get on the portal and get on a reoccurring payment process, you will never pay a late fee again. So one, it's just explaining the benefit to tenants, and two, most tenants, if you explain. The benefit is on our end too. If you can pay on the portal, it makes many people's lives easier.

We would appreciate it. The overwhelming majority will say, "Oh, okay, cool, No problem. 

Jason Baxter: Yeah, and if you think about returning to where the world is today, all these people have iPhones, smartphones, everybody already lives in that world, so it's not like they won't; they need somebody to help walk them through it.

What has yet to happen on the other end is the previous owner doesn't have technology set up, so it's easier for them to go; we'll collect checks. And so all it is a function of just nobody taking the big step of moving in that direction. But going back to what we were talking about earlier from how do you communicate with these tenants or show them that we care differently than the previous owner, what Steve was saying, day one, when we go out there and meet with them, or even starting 30 days back, we're building commonality and rapport and trust what Steve was mentioning.

All those things matter when you start to have these conversations. So when you start day one, that communication and how that property manager treats that tenant, we first have to ask them to change. That's the first thing we're saying: you have to change almost in every case. They only feel comfortable doing that if they trust the person asking them to change.

And so if you start thinking about this from a psychology level, this is the same as what we're training our internal team to do, to communicate with each other, or a manager to manage a team, right? It is all about how you build commonality. How do you build trust? How do you build rapport? How do you communicate with your team?

We're passing that down from the executive team to managers so those managers can go out in the real world and treat the tenants the same way. 

Chris Powers: Building a relationship with a tenant would be significant. They're often three to five-year leases. We're often their second-largest payment every month.

We're very much connected.

Jason Baxter: You can be the enemy, or you can be the partner.

Chris Powers: And it would just shock many people. How little emphasis is put on that relationship in many other places? The other thing you said was cost savings. We've talked about economies of scale.

You talked about vendors. Again, one of the beauties of what we have at Fort between the nearly 7 million square feet that we're managing of our own and a million and a half square feet of third parties with another million coming on board is we do have economies of scale.

Can you give more insight into what we can do on the cost-saving side, which flows through to the investor? It creates value across the board because that's important. If you're working with a property manager that doesn't have economies of scale or doesn't have negotiating bargaining power, you're going to be playing, paying inflated expenses.

How do we continue to find ways to save money? 

Steve Bailey: Yeah, great question. And that is something we're passionate about. As far as the cost savings goes, it's genuinely ingrained into every team member's Core, no pun intended. So we have an acronym that we use called Core COR stands for cost Savings, overhead Management, and Revenue Generation.

That is something that we have a dashboard for. So we talked about technology. So not just PMs, every person on the team, anytime they save money doing anything. They input those cost savings into the cost savings tracker and FOS. And we review that as a team monthly so we can slice that data any way we want.

I can look at it by asset, I can look at it by a property manager, I can look at it by the non-property manager, and how much money we've genuinely saved the property managers just due to the nature of their business, they have the most opportunity to save money because they're constantly dealing with vendors and contractors and trades.

I have a great story that we had in Houston; Kelly, one of our property managers, we had an asset that we had closed on and the city of Stafford, and we didn't realize this, didn't know this, but Stafford has a law that says any new building that's transacted upon needs to be brought up to current fire code.

If it's not sprinkled, you need to install fire suppression, which is just hundreds of thousands of dollars; very cost prohibitive; we indeed didn't underwrite to add fire suppression into a building built in 1988, right? We had two options there.

Kelly could have just said, Hey, Steve got some bad news. I'm going to get some bids on fire suppression, But she just fought tooth and nail with the city, the fire marshal, and that entire team, which is like, guys, what you're asking seems a little unreasonable. We've already agreed that we will solve a fire alarm system, but the bids we received were more than $400,000 for the fire suppression system.

The conversations took months and months. And finally, the fire marshal agreed that if we would install the fire alarm and then have a monthly proactive inspection to ensure that the tenants weren't storing things they shouldn't be stored, he would waive the requirement. And so just that owner's mindset that she had to do that saved the asset $400,000.

And there are stories like that every day, literally every day, where we are putting the onus on the PM to think like an owner. And the way we do that is we incentivize every single property manager based on asset performance. So if the asset is outperforming what we said it was going to do, the property manager reaps those benefits, and we bonus our PMs on the overall health of the asset.

Excuse me. And a lot of that is cost savings.

Chris Powers: And I imagine that cost savings tracker and the meeting you have if a property manager in Dallas figures out something that flows through to every property manager, this is something I could do. So it's a collaborative effort to keep finding ways to save money.

Jason Baxter: Everyone sees every potential cost saving we get across. And what Steve says, not just property managers, we do this at the highest level of fort capital, all the way down to every single employee. And so what again, it's more about the culture than it is the things that you find. If it's in the culture, you'll always find things right.

There's always going to be new things. And so because we incentivize, the structure is set up for them to find those things, not only do they find them, not just so they can make more money, they know that is what success looks like at Ford. If we're trying to be the best real estate operator in the world, and we find that every time we find one of those impactful things, it becomes a part of the process so somebody else doesn't have to remember that, right?

That becomes built into our system where that can't happen again, or we have a path to look for that opportunity in the future. So now, when we underwrite a deal, let's say we underwrite a deal in the future, we have discovered a way to save money that other people still need. We can look at it differently than others because they underwrite it as a cost.

Chris Powers: So we have over 1700 tenants. One of the ways we create value is by converting gross leases to triple-net leases. So the first question is, how do we do that? We inherit leases when we buy a deal. How do we eventually convert them from gross to triple net? 

Steve Bailey: So much of it is just communication and education.

We have a standard form lease that is a triple net lease. And so when it's renewal time, and we're going to a tenant traditionally on a gross lease, it's educating them on why the triple net lease is so essential. So from our view, obviously from the landlord's view, the tenant is sharing in his fair share, her fair share of the expenses, the taxes, the insurance, and the cam.

But it also, if we know that the tenant is now going to be responsible for 99% of the items in their space and they're going to be participating in the expenses, they're going to be more likely to take pride in the space, take care of the space, and help us identify ways that we could potentially save money.

There are tenants all the time that'll go, Hey, have you guys, did you guys know that a truck comes by here at night? And he was dumping illegally. I put up a camera, and I got his license plate number because they know that we have to pay to pick those things up, and ultimately that cost gets passed down to them.

So they're more inclined to speak up when they also see opportunities. 

Chris Powers: How do we collect for triple nets? 

Steve Bailey: We bill each month when we bill for rent. So, it's based on their pro rata share, and the actual trip nets are based on our annual budget. Let the tenants know these are estimates, right?

So we got them pretty dialed in, and every month they get billed a line item for base rent and then tax insurance and cam based on their square footage. 

Chris Powers: Got it. We talked about CapEx in the first 30 days. What do we think about TI for the tenants? What matters? 

Steve Bailey: Yeah. So when I think of TI, I think of a win scenario.

What I mean by that is that when we choose to do TI at an asset, we are adding value to the asset. There's a win for the asset. We are taking a new tenant and letting them customize or beautify their space, so it's a win for the tenant. FCP, one of the other components that our property managers do is manage all of the construction in-house.

So all that TI is managed by the PM, and we charge a fee. So FCP for Capital, it's a win for us, and then lastly, many of our relationships with great trade partners and vendors. We're giving them more work, and so they're very appreciative of that. And so it's a win for our partners as well.

So yeah, we love it.

Chris Powers: Okay. It is a question that I think gets asked a lot, whether it's industrial any time, but where do you draw the line between appeasing a tenant versus taking care of something that you could probably point to the lease and say, we aren't usually the ones that handle that or check the lease? 

Steve Bailey: Great question. And it's a slippery slope, Because we have, remember, most of our parks are multi-tenant, and we may have a park with 30, 40, 50, or 60 tenants. And if we're not careful, the initial thought of the PM is we want to be super helpful. We can be helpful while sticking to the lease terms.

One of the worst things we could do is go outside that lease agreement because we want to be friendly and help the tenant. But then what if that tenant is okay? He goes to his neighbor and says, Hey, they fixed my plumbing issue. And then you multiply that out, and it can get out of hand.

However, to your point of getting an email and saying, Hey, that's your responsibility. Check your lease. So we train our PMs whenever we can be helpful; let's do so, and hey, Chris. I saw that you said you had a plumbing issue. Unfortunately, we did look at the lease, and you are responsible for it.

However, a great plumber handles all our plumbing work at this asset. He usually gives us a great rate. I'd be happy to make that introduction and send you his contact info; that way, you could go through him directly and get that taken care of. That's two different conversations.

I am not usually the one that handles it, or, Hey, you're responsible for it, but let me at least connect you to the guy who can help you, if that makes sense. 

Chris Powers: I love it. On that note, it's really been, I think, began last year, and this is now starting to grow, but we're bringing maintenance technicians in-house.

So when we first launched, we didn't; what is the reason to bring maintenance technicians in-house, and what's their value to our property management business? 

Steve Bailey: Yeah, so the maintenance tech is another core initiative, and it checks all three sorts of cost reduction, overhead management, and revenue generation.

So we, again, got to size economies of scale to where we could bring someone in-house and self-perform work that will be overall cost savings to the asset. And so what I mean by that is, again, the beauty of the triple net lease is that the tenants are responsible for most of the items. However, there are still some common area things like, so let's say a fence got damaged and blew down well before having a maintenance tech in-house, let's get three bids with three different fence companies. Let's do a bid comparison analysis, and then, okay, let's pick this fence company. They'll come out, and they'll fix it asset gets charged.

Three grand, Okay, great. Now with the maintenance tech, we can self-perform that work. So we're getting it done faster, we're getting it done way cheaper, and back to the original point of how do our PMs create efficiencies? They're not dealing with a fence company, getting three bids.

So it's been great. And we have today another maintenance tax. On the first day, we hired one in Houston, so we've got one in DFW and one in Houston.

Jason Baxter: And, what he mentioned, it goes back to economies of scale. Those are, that's the same as getting into property management.

There will continue to be ways that we can add value to the asset that also add value to us becoming the best real estate operator in the world. And this is an example of that. Just keep finding ways to improve, which inevitably adds value to the asset. 

Chris Powers: Okay. We've covered a lot about how we do it.

All this work is generating data. Let's talk about the data that generates; some of it can be the obvious stuff, but what are some of the maybe intangibles or some of the things that we get to experience that we would never otherwise be able to without in-house property management?

Steve Bailey: Yeah, so my mind immediately goes to the specific uses for, from the tenant perspective.

So we know that tenant A is in this space by managing that asset in-house and not exporting the third-party management services. I know how many employees that tenant has onsite. I know how that tenant distributes goods and services out of that warehouse. I know how often that tenant has contacted us for a maintenance service request.

I can look at the maintenance service request. I can dice that data a hundred different ways. I can, and I know what the tenant's renewal is coming up. We have everything in-house, and all these items are on dashboards. And then, not to mention all of the financial data.

Jason Baxter: Yeah, it allows us to, what's to continue with what Steve was saying is you, if you take all that data and it, there's way more than that we can see at the asset level from a tenant perspective. You can compare that against all the other assets we own, so we can see precisely how many X types of tenants we have across the entire portfolio.

We can see if we have the same tenant in multiple buildings. We can see if a tenant usually pays their rent on the fifth of every month like clockwork, and suddenly it starts to come in on the seventh. What does that mean, right? You start to see trends that otherwise you wouldn't be able to see, and you can; many people think I could ask that of my third-party manager.

But back to what Steve said earlier, if multiple people keep that data for you, you will get it in different formats. And some are going to get it, and some aren't. Some are going to get it well, and some need to be. But the real key is where does that data go? Where does it live?

And how do you con ingest that data consistently over time so you can start to build those trends and those visuals to see this is what our portfolio is? It is what it looks like. It is how you can think about it. And this is where the opportunity is. So we've started to look at it from a leasing perspective to say, where are there gaps?

In vacancy or occupancy, correct? And where do we have tenants that are expanding and that need more space, and where might they fit into our portfolio, and what options can we give them, proper? So you start taking it from a property management perspective and a cost savings perspective and all those things and start looking at how you create value for the asset and tenant, right?

So when they start looking for more space, instead of saying go out in the market and see what's there, we can be proactive and ask them beforehand. Let us know if you all think about expanding because we have space for you. 

Chris Powers: And there's also value in it being real-time data. If you're using, data often lag, or it's what was relevant.

By the time you get it, it is no longer relevant. Our data is, in real-time, daily on the spot so that we can make decisions. Let's take this a step further. Because we have this data, we're buying and underwriting new deals. How does data from property management flow through to how we underwrite new opportunities?

And then, what is the property management team's role when we're underwriting new opportunities? Because in a lot of companies, property management doesn't participate in this. Should we do this deal, or should we not? 

Jason Baxter: I'll let Steve can jump on the aspect of property management has a massive hand in us confirming the cost and the money that we need upfront and ongoing to manage the asset, but we do a lot of things in the underwriting upfront where we take into account the trends of what is happening across the asset.

So many investors have started going, and you know how we always joke. Everything is up to the right, no matter how you underwrite. It's always going to keep going up. But what we do is we look at what's happening and say, Okay, rents were increasing at x percent per month. They're increasing at X, and we can dial that back.

It is also what we projected vacancy at before. It is how our portfolio is running. When you get to economies of scale, you can take your data. You don't have to rely on CoStar or LoopNet and hope that everything they enter gives you the tools you need to make a good decision.

You have accurate world data of your own. No, nobody's data can beat your data. Your actual hard facts, as you said, that's real-time. And so we use that, and one way that we do that more consistently now is to forecast our assets every month. And this is something new for us because we report to investors quarterly.

We distribute monthly, but we report quarterly. So we give high-level asset updates quarterly. But we realized that if we start doing a full monthly forecast, and that's across every asset, every MLA, which means we are going through all the leasing and saying, this is what we thought would happen.

It is what's happened. It is now what is going to happen. Forget the original performer. Now we're in real-world time saying; we thought we would lease this at $10; we released it at 11. Therefore the following three leases, should we adjust those right across every asset? And that sounds minor, but if you do that every month, Your view of what's possible and what's going to happen changes drastically as opposed to looking at that in more extended periods.

And so that's how we use it on the upfront underwriting. And then when it comes to the proper understanding, the cost of the assets, Steve and the team going back 30 days prior, that's where they jump in, and I'll let you take it from there.

Steve Bailey: Yeah, the PMs have real-time knowledge of what's happening from a cost perspective.

Are we getting price increases from suppliers or vendors? If so, did we account for that? Going back to the underwriting team and letting them know that, hey man, we're getting squeezed on X, Y, and Z. We need to boost this up, Or Hey man, we've done an outstanding job leveraging some of these relationships. Due to our scale and purchasing power, we can back some of this down.

So just having those real-time conversations. 

Jason Baxter: And then what he mentioned earlier about the 30 days prior when those jobs get kicked off, part of the jobs that the property managers against, specifically Steve, is toward the asset and get honest feedback so that we start creating that budget 30 days in advance of what the asset needs, like truly what it needs.

Instead of saying, Hey, we looked at Google Earth, and it might need a new roof. The owner's saying the roof's suitable for another ten years. We looked at the parking lot. It's all right. Instead of just taking that high-level approach, throwing a bucket of money in there and saying, 500 grand will cover it.

We dial in a detailed budget before getting to our money, going hard to where we know precisely what CapEx, upfront CapEx, and TI dollar will be. And the property management team has vetted all that. So instead of relying on the investment team, which many groups do, the property management team's not even brought in until closing.

And the investment team is the one, or deal team acquisition guys are the ones throwing those estimates out there or they're. They're sending an email to their property manager saying, Hey, these guys are saying we need a new roof. What's a new roof? Seven bucks a foot. Is that about right? If I put seven, am I good?

Yeah, you're good. As opposed to actually going and doing the work and saying, what will this cost us too? When we take over this asset, what will we run into? So we've gotten good at dialing in those budgets ahead of time.

Chris Powers: And on the discussion of real-time. If you look at multi-family, the software allows them to almost price units by the hour, The hotel industry at a price by the hour.

For many of the assets we've bought, part of the reason they're undervalued is that it's an out-of-state owner. They're disconnected from property management leasing, and they've kept leasing rates the same for sometimes years without knowing the market.

How do our property management team and company adjust leasing rates as we go? At times we can move a rate in a week or a month. How does that flow through the company? 

Jason Baxter: So what's done through our real-time data, so we're, because we have 1700 tenants now, and we can track what's happening in the market every time.

And again, it's different than multi-family. Multi-family and hotels can have the commonality of pricing and movement because they have an ideal time when those leases change. Multi-family, every lease changes every 12 or 13 months. Most of them are 13 months or shorter.

Very rarely is there a different timeline? So they can; everything's on the same cycle. In a hotel, it's easy; it's nightly, right? It's easy to price that stuff. Vacancy what's there. They can do it. And industry, every lease is different. You might have a one-year lease, a three-year lease, a two-year lease, or a triple net, not a triple net.

We pay the, and there are too many dynamics, right? So you need to have a commonality or structure to price it. We must track the market of what's happening in real time. And what we say is, It is the demand. How many tenants are coming to the door?

How much did we underwrite? And if more tenants are coming to the door than what we underwrite, then the price needs to be higher. That's all there is, so the price must increase if our occupancy is high. You find the equilibrium there because there's too much demand for our price.

That's what every market does. And industrial's been on this run for a while, where the rents have been rising at a pace that seems unsustainable, and it is. It can't be sustainable forever. But what it's still trying to find is its equilibrium to demand. And so that's all it is about. And so, since we have enough scale and economies of scale, we can now track our equilibrium and price discovery through supply and demand and our portfolio.

If you take out some one-off buildings that we've owned for a long time and look at the Core industrial we've owned over the last three or four years, We probably run in that 90 to 94% range, depending on the asset. Some are a hundred percent, and some are a little less, depending on how long we've owned them or our plan.

But we closely track the overall occupancy percentage and the individual asset level. And what we're trying to watch is for any change in that growth pace. So rent can slow down regarding growth, but what is the demand? Is it still coming at that pace? And we track both of those closely to ensure we keep the buildings full.

So at the end of the day, that's the game.

Chris Powers: Okay. We're going to talk about leasing for a second, but there's one thing you said at the beginning that I had a note on when we were talking about property managers, and you said our lease admin team. It takes on a lot of the work that they would traditionally do.

Can you explain what a lease admin team does, like their functions, and why they've been valuable to property management? 

Steve Bailey: Yeah. So our lease admin team, when we get a, let's say, we sign a new lease. So they do all the backend work on getting that lease uploaded into Yardi, confirming that we have all the rent calculations correctly to ensure we're charging the tenant appropriately.

They also help with a variety of leases. So we have an in-house leasing team. The lease admin team provides different metrics and studies on our sub-markets that we're currently in-house leasing in. So we can go back to the data thing; we can identify that this submarket's overall occupancy is 84%; we're at 88%.

Great that we're doing a great job there. The team is hugely valuable in initial budget creation. So when we acquire an asset, all of the jobs that get automatically launched, one of those jobs goes directly to the lease administration team, and they create the year one budget for that asset.

Because it's essentially the year one underwriting, but instead of having the pm have to get into the weeds and create that initial budget, the lease admin team spits that out typically the day of close. So we've closed on the asset, or even sooner, we've closed on the asset, and the PM and team already have a budget to reference.

So that's been an enormous time-saving.

Chris Powers: And give a little context to this. We've bought some deals that have hundreds of tenants in them. When we close, just the gravity of getting the information correctly. How big of an undertaking is that, and how might other companies do it?

And we do it differently. 

Steve Bailey: Yeah. That is such a great question. I'll pick an asset we closed on a few years ago and then compare it to one we recently closed on. So a couple of years ago, we closed on an asset in Houston with over a hundred tenants. So that took a minor administration team almost three weeks to get all the tenants uploaded.

Like you and we, we have two things when we're onboarded. We have one; we have FOS, which is our internal operating system. So tenant contact information would lease, type all of the data there, and then also in Yardi. So they were inputting the data twice. So once in FOS, once in Yardi took three weeks.

Harrowing process. The deal that we recently closed on Spring Valley Tech. Like 45 tenets, so not quite a hundred, but 45 tenets is nothing to sneeze at. And they said it took them six hours. So we've identified a way to use ETL uploads so that way the data's only be entered one time, so they are shaved off.

Jason Baxter: And it's imported, not manually input.

So there's a way less actual manual process. There's always some, but there's way less than ever. And then the one other thing that the lease admin team does, I'll add to that because it will be critical in the future, but they do support the leasing team, the leasing team.

So there's an onboarding aspect that releases the property manager. Still, there's an ongoing aspect to where new leases come in because, remember, we keep getting leases forever, and they're part of that team where they ingest those leases, but they're also able to analyze them. So when you talk about how we know everything we just discussed, those trends, and the lease admin team handles analysis.

So they're the ones that are managing those reports and those dashboards to be able to give those leasing teams and us on the investment team what's happening. So they're a critical component of that. They work like analysts. 

Chris Powers: Okay. We mentioned leasing, and we mentioned in-house leasing. And like the question we started with, why did we decide to get into property management?

Why did we decide to get into in-house leasing? 

Steve Bailey: So again, due to the scale we've achieved, we saw a tremendous opportunity from a revenue generation standpoint. So again, going back to the Core, the three sorts of components of the Core. We've got the R, the revenue generation. We initially kicked this off in Houston, where an enormous amount of our portfolio resides in Houston.

And so we have two in-house leasing managers, and they've done a fabulous job so far where the plan is to take this to DFW and San Antonio. But it was just such a massive opportunity to grow the revenue stream, and then also, Again, going back to data, it's now we're directly working with prospects.

So we're collecting data from that front that we otherwise wouldn't usually get. Now that's flowing into our system.

Jason Baxter: And it ties into the ownership mindset. It's the same thing as property management. At some point, you realize we have great leasing teams that work for us and do a fantastic job. Some are way better than us right now, and that's why we picked; we still choose to use those partners in those markets. Still, there are some markets, sub-markets, or asset classes where we were already doing a lot of the heavy lifting from either the property management side or lease admin side or something where.

We were doing the leasing in-house without actually having any leasing people where a lot of the people would call us direct, or the property manager would know something, and it was those assets that we started to test. Same thing we did in property management. We start slowly and see, and we're only going to do this where we know we would be more successful than our other option in the market.

So it all starts with we're not going to try to create revenue if we can't add asset value to the asset. Because there, our goal isn't just to win; we're an investor in the deals. Also, we need the asset to win. And so we look for opportunities where the asset can outperform if we do the leasing.

And what we found is, Because of how dialed in our processes are, our systems, our technology is that as we start to take properties on in-house, we can manage them better. From a leasing perspective, we can see things better. And so we believe this will turn out just like our property management business, where it will be a short time until we are much better at leasing our properties than anyone else.

It doesn't mean we will be better at leasing someone else's properties today. Still, we for sure will be better at leasing our own because of one, the owner mindset that all the data we have internally, the fact that we can communicate with property managers and leasing team directly, they work as basically one team.

Leasing flows under property management because they are technically one team. They're at the asset level. And so we believe there's a lot of synergies and a lot of value to the asset, the investor, to us, as an operating company for the future. And so we're just getting started.

Chris Powers: And can you expand a little bit?

I think one of the observations we had over time and as we continue to learn more about the asset class was the deals we were buying that had smaller suite sizes, and you said we were doing a lot of the work; a lot of those tenants weren't represented in the market by tenant rep brokers.

They weren't in the market a year in advance looking for spaces. It was like a multi-family. They're walking in. What do you get? Can you expand a little bit more on just what we identified and how we look at assets where the smaller the tenant, maybe it's a little more inefficient, and that did provide a massive opportunity for us to do the leasing rather than maybe some of the misalignment you have with hiring third parties on small properties that either aren't as incentivized to lease them because they're small commissions, but you nailed it.

Jason Baxter: That's what it is. The commissions are manageable on 1200 square feet. Suppose you're signing one, two, or even three-year leases. We're not talking about large sums of money. What you're talking about is volume. And so if you're a big brokerage firm with great leasing people who have been successful in the business for a long time, it's not a secret that those successful people have moved on to bigger and better things. They're not interested in representing 500, 1200 square foot spaces.

It's not a sexy business to be in. It's a lot of hard work. Now, you're always going to get a junior guy or a junior girl, somebody up and coming to do that. What we have found is the value is because we have all the tools and resources in-house, we can incentivize, and we can create paths for people to have more success than otherwise could if they were just a broker in the outside world, being a broker and working for an owner, because we don't, we're, they're not brokers for us, they're our leasing team.

But being an in-house leasing manager or director differs from being a firm broker. It's a different thing. We have a built-in business; they don't have to find tenants, they don't have to find clients, they don't have to do tenant rep. They have a built-in business path, and we can create that for them.

And because of our economies of scale, we can create unique opportunities for people in the market to have a built-in, essentially annuity stream because they'll permanently have leased. Every lease we have is one to three years; if you have 1700, which will soon be 3000, there will be a lot of opportunities for a long time.

And so we can continue to build on that. 

Chris Powers: Okay. We've touched on this, but to tie it up. We have an in-house team, and we have data generation. How does leasing look at all the data that comes in? We've already hit on it, but how does our leasing team communicate and use the data we're bringing to bring it home?

Jason Baxter: It's synonymous. 

Steve Bailey: Yeah. So it's synonymous. And we are, again, going back to tech and dashboard. So we have a phenomenal tool that the in-house leasing team uses called our leasing activity dashboard. And on that dashboard, there's so much data. Again, we can look at how many expiring spaces we have.

So we have all our expirations and can look at the actual activity happening in the spaces in real time. So as our leasing managers are getting feedback from prospects, they're entering their notes into the system. So our director of leasing, myself, Jason, and anybody can pull up this dashboard and quickly see that we had four tours this week at this asset.

So what are we doing to get those across the finish line? And it, within that dashboard, it has, what did we underwrite for the rate, what do we expect the rate that we're going to get? So again, it's just having the data at our fingertips at all times. It's massive.

Jason Baxter: And being able to sort that data.

So, if you go back to how we run our whole company regarding flywheel and goal setting, it is through OKRs. And so it's the same when you're looking at leasing. You have to know what to focus your attention on. And if you're a leasing team, how they use the data is knowing what to focus on.

We've got assets that are a hundred percent occupied, so should we spend our leasing meeting time talking about the asset for an hour? That's crushing it. You're going to talk about it, but you don't. You need to spend most of your time focused on the assets where you need attention, where there's a vacancy that's been there too long, or a third party person has been leasing it. There's a space that has been vacant for two months, and you look at the activity and say, there's been no activity, so what is the number one thing we should do?

We have to get some activity in that space. It's straightforward to bring that to the top of the focus point, and you know how to set your goals for the next week or quarter. And so, what is the data and information the lease admins collect monthly, and what does the property management team feedback give them?

When you compile all that data, the leasing team. They can be; they can hold themselves accountable, right? You don't need a manager out there holding them accountable, like, why isn't this space lease? It's very transparent, self-evident. So when the leasing team meets every week, they can focus on the most essential things.

Chris Powers: We've talked about in-house leasing, but touch on third-party leasing briefly.

We've done a remarkable job of holding third-party leasing teams accountable. Again, something in this asset class where the owner can be very distant from the leasing team. The leasing team is optional to provide regular updates on what's happening. You mentioned that when we're doing in-house, we might know there were four tours that week.

If it's a third party, sometimes you need to learn. There were four tours that week. That would've been good to know. To make it as aligned as possible, we do things not with our in-house team but with our third-party teams. To make it as aligned as possible is almost as if they were in-house. 

Jason Baxter: Yeah, it has the right staff internally.

So we've always had, and we've talked about this position a lot, our director of leasing internally; before doing any internal leasing, we only managed third-party external leasing. So we have somebody dedicated that only manages those relationships. And that person is hand selected as the correct person to manage those third-party relationships.

And so we have an ownership requirement for the third party leasing managers where they're held to a high standard, where we have to get at least the minimum of the information we need. And so it's a challenge, like with anything, you must manage. You're managing people, personalities, relationships, all those things.

And then you have to remember; there's also some turnover. So that is a never-ending job of managing the incentive, the drive, the push of having someone else execute your business plan at your asset. Because it's nice to think you're the only client, but that is never the case, right? So you have to know that as soon as they tell you the update on your asset, they're getting on the call and telling someone else the update on their asset.

And what it becomes is, Who's the squeakiest wheel? And that's where you realize that a long-term business plan is different; how do we become the squeakiest wheel? But we know that is the game that you play right now. So, again, because of our culture and how we build our team, the person that does that on our team, Rob, is uniquely qualified not to be a squeaky wheel and get all the attention.

And that's a hard thing to do, right? So you have to build trust, rapport, relationships, etc. And then, when it isn't working, the tricky thing with leasing is you have to know when to make a change. Because there sometimes it just needs new blood, new momentum. And the brokerage world knows this.

It's, that's the game that everybody's playing. And it's an intricate part of the business. And successful people figure out how to do it themselves. 

Chris Powers: Can I ask What would have to have happened with a third-party broker?

Make their performance make a change for us to have decided it's time to move on.

Jason Baxter: Yeah. No low volume of updates, correct? So it's obvious. So if you're having calls with a broker and you need a better attitude, the response is not confidence, certainty, or direction or guidance that needs to happen to get the space leased, and it's just another, yeah.

We are still waiting for an update and still waiting for the tour. Yeah. I don't know what to tell you. That's a problem. And it doesn't necessarily mean the brokerage or the partner is the issue because those can be great groups; we're talking about individuals. That has to do the work. And so, you must pay close attention to people's attitudes about the potential of executing your business plan.

And you have to be keen when you're being sold a bill of goods or just told what they think you want to hear versus reality, right? So we're always trying to listen for what is reality. We need to know. We need to get at least $8 triple net on this in the next 30 days.

Is that possible? And we need the truth. And so when we make that choice, it's when that's not what we're getting. 

Chris Powers: And we're going to get to teach in a second, but speaking of attitude, Steve, can you describe what we look for when hiring a new property manager? Attitude's critical, especially in the property management role, but it describes what a great property manager would look like for us.

Steve Bailey: Yeah, so great question. When I'm identifying a candidate, the first thing is, do they align with our core values? Are they resilient? Are they agile? Are they accountable? Are they driven? That's the anti of the game. If we've identified that our core values align, I'm looking for someone willing to ask questions.

So very curious. I'm looking for someone willing to risk failure. I'm looking for someone willing to be inspected, and I'm looking for someone that has a top-notch attitude. The manager can meet our core values, wants to learn, is eager to learn, and has a great attitude about learning.

Then we look at our culture index, so we have a tool and a process that identifies candidates for specific job types and their personality traits. From a skill or technical perspective, most of our property managers only managed industrial assets after coming to FCP.

They might have managed multi-family, they may have managed office, and managed residential, but they need industrial experience. Most didn't have Yardi experience, but that inner. Intangible stuff was jumping off the page. And I'm incredibly blessed, and Our team is fantastic.

An example is most of the PMs in Houston. Our Houston regional director, Sarah, has done a fantastic job assembling a team that only had some of the technical. Still, they had the intangibles, and they're crushing it. 

Jason Baxter: Yeah. The other way to say that is we hire the things you can't train.

And if you do that first, the stuff that, they have to have some skill, they have to have some experience. That's a given, but that's not so critical that they know they've done what we will ask them to do because we have lots of tools. We have lots of resources.

We have excellent internal training and mentorship to get people to be great at the technical side, but they must first be the right person. And so if you hire that first, Steve and I have found through our careers that if you hyper-focus on the right people or suitable person, right bus, right seat, old school mentality. The key is how you do that. And that's what we feel at Fort Capital; we've gotten good at, is identifying that and being very strict internally to ensure that we follow that rule every time we hire. And the more you do that, the better the team gets, the stronger the team gets, and you realize that you have more people that are more dedicated, more excited, because those right people that come in with the right profile, the right personality, the right attitude, when they are given a chance to learn something new and the team, the manager or the hiring person helps them learn that thing.

They are more dedicated, more bought in, and more excited about doing it in the future. And so yeah, and it's similar to property management for Capital. It's all the same. We hired the same way across the entire company and knock on wood; it's been highly successful. 

Chris Powers: One popular question, and we've hit on it in several answers, but talking about our quote-unquote, tech stack, or how we use technology and property management.

Can we speak to, maybe, to start some of the tools or software that go into property management? 

Steve Bailey: Sure. Yeah, absolutely. So when I think of tech, my mind immediately goes to FOS. That's where everything starts with us at Fort Capital. That's our primary software.

All workflow goes through FOS; through FOS, we can automate many. We worked hard over the last couple of years. There's property management as an example. There are so many things that the property manager does monthly every single month.

And through FOS, we're able to automate those. So again, freeing up their time and helping them become more efficient. FOS is, first and foremost, number one. We use Yardi from an accounting perspective. That's not earth-shattering, but how we use the data from Yardi is a significant competitive advantage.

So when we talk about all the dashboards referenced all day, only a few of those dashboards that data flows through Yardi to the dashboard. And so being able to leverage that and use it for that I'm in the dashboards, they're invaluable daily.

And so we have the Yardi, and then we have FOS, and then we also use a software called Abstract, CRE, and that's a software in which we've got an acquisition coming up. It's a hundred tenants. Okay, we've got an abstract for a hundred leases. Holy cow. The good news is we have this software.

That will abstract those hundred leases; all that data is stored in a dashboard. The property manager can quickly pull that up at any given time and access the information right there. So again, efficiencies.

Jason Baxter: And the key to what Steve is saying is whether it's using the most powerful accounting software out there, right?

The key is, do you use that in a silo? And then you have part of your team working in that only, and then how is that connected to everything else you're doing? And if you have all this communication and workflow, accountability, responsibility, all this stuff that happens within our internal system, how do you connect so all that, accountability and responsibility and communication and knowledge is all in one place? And that's what FOS does. We have a data warehouse built underneath FOS, the backbone of everything. It's the brain that makes everything happen. Because that stuff's coming in, it's getting sorted and ingested, so we can do whatever we want.

And when Steve talks about dashboards, that's what's happening. That data warehouse can accumulate all sources of data no matter where they come from, whether it's abstract, Yardi, third-party leasing tenants, or our leasing. It doesn't matter where it comes from. We have a way to ingest that data almost always now because, thankful for technology just in general.

In an automated way where there's less manual input, and we can do whatever we want with that data, the more we compound that data, the better our view of what's happening. What it boils down to in FOS is that from a tech stack, when he said all these processes and things are automated, you have all that data flowing in from an accounting or abstract software. It's in one place, and then you can tie that to a process of something you need someone to do; you can give that person the ability to get good at their job.

Otherwise, you're asking many people to do many things in many different places, and what ends up happening is they need to do it.

Chris Powers: I'll ask it, and you answered it, but I'll ask it differently. We only know about Fort, but we've had the luxury of observing other companies and talking to business owners.

We talk about FOS; it is our central place of truth that all data flows into. Would you describe, in your opinion, What it would be like to work at another company that doesn't have that has all the different software and bring a little more meaning to what that doesn't provide the employee when data is siloed in other places of the company and where communication could be stalled that we don't have to deal with. 

Jason Baxter: Yeah, I can. I know it from my experience of working at what appeared to be a great company but had very siloed data. And what ends up happening is that you focus on what you know. And you do what you can do with what you have access to.

And so you have a lot of people trying to be, do the best job. They can be the best they can be but need more resources. And even if they technically have access to those resources, if it's cumbersome to get that information or to get that data or to have it as a part of a comparison to what you do every day. It just starts to break down. And some people will do it, and some people won't. So what you have is inconsistency across an organization about how things are viewed, how things are seen, and how things are done. And so when you can tie all that together and you can, you don't make it so that people have to learn how to get all this information.

You say this is how it happens. And you say, and by the way, don't even worry about it. You will get the information that will come right to you, and what you need to do will be evident. And if you need to know the data behind that, we will also give you that. Here's your dashboard that you can log into every day.

And oh, by the way, you need to log into it daily because it will tell you how everything's performing in your world. And for every job you get assigned, you will be coming knowing or attached to that data, right? And every action you take will continue to compound that data.

So when you say the word, one source of truth, that's what it is you're giving people. You're taking out the entropy, which we've discussed extensively. You're talking about wasted time and energy remembering, reminding, and following up, right? All those things that you have to do as a company and when you start getting to 20, 30, 40, 50, 60, 70, a hundred people, which will be at very before we know it, it's challenging to try to get everybody to see the same thing or to be thinking the same way or to know how to perform at their best.

Having that one source of truth doesn't matter. Data's going to come from a lot of places in the future. It already comes from a ton of places. We can't worry about where it will come from because we want it all. We want as much as we can get. And this is what you do.

Chris Powers: And because we have the one source of truth, you can't, at Fort, you really can't do your, you can't have a folder on your desktop where you're just doing work.

That's to you that the work has to go through the system for it to work's.

Jason Baxter: That's great; I'm glad you brought that up because there are always things in a company that become like habit, right? We talk a lot about this. Habits become like the way that things happen, right? Somebody builds a skill, or they have a piece of knowledge, they build a skill, and they turn it into a habit if that habit is bad or if it's terrible and it may not be harmful to them, but it's wrong in terms of what we just said one source of truth. 

And that shows up in a company by things like somebody who just had a habit before they came to a place like Fort. And the way they tracked, they just had a spreadsheet on their computer and felt comfortable updating it and keeping it on their computer.

We've shown the team, starting with the leadership team, which is devastating to a company that will rely on data. And so I sent this job out a long time ago, but it was saying if you have a spreadsheet on your computer, you are updating it weekly, monthly, or daily.

If you're updating it right now, a spreadsheet, you have to. And we talked about how to help to do that, but it was just explaining that there is no value in that information living in your world. That information needs to live in a database because we can then compare it.

And even if it's just for them, I don't need it necessarily so that I have access to what they're trying to track. It is to show them that there's a better way to track that data, which will become more valuable to them in the future, and there's less chance for error. And so we've systematically gone through the company and tried to weed out all those things.

And again, it goes back to culture. Now the leadership and the executive team are fully bought in and see the value through all the data that we have to where now they're proactively going to their teams and going, no, we can't do that. And so we, we've made so much progress in that world.

90% of everything we do now is done correctly. The key is you have to keep training, encouraging, incentivizing, and as long as you're giving value back to people, they start to see that they will want to do it differently. They realize, why would I do that?

That's a total waste of time. I can do it like this. 

Chris Powers: One thing our technologies allowed us to do more efficiently is forecast, and we're going into a market where cash management is even more critical than ever. We're now re-forecasting monthly, but we're also doing it in a manageable way on the team.

How does re-forecasting work, why we do it monthly, and what decisions lead for our property managers and us? 

Jason Baxter: Yeah. Re-forecasting is a critical aspect of any real estate investment. At all, ever. And what ends up happening is it becomes a secondary thought of a catch-up.

So re-forecasting tick becomes oh man, this is what happens. We need to check and see where what to do next. So it's like an afterthought. So you're reactive, not proactive. So what we've done is we've flipped that thought process the other way, 180 degrees, and said, we need to make this 100% a proactive thought.

So we have somebody internally whose whole job is to manage the flow of information that first comes through accounting. So we have, get what Steve said earlier, the most significant chance for money spent and savings is at the property management level because they have access to rent collection and cash spent.

So we first get all that information every month. That information flows right into Yardi, which then flows into specific dashboards and re-forecasting models, right? So instead of being a detached thought of reforest casting because it's an investment, we forecast every action taken at the property level as a whole organization so that all that information comes in.

The person on our team is designated to proactively do that every month before deciding what to do with the asset. Whether it's distribution draws to spend money, CapEx, or TI, that person is doing that proactively before going into the next month. And what we found, we felt like we were one of the best at it.

But we were doing it reactively. We would get to the end of every month or every quarter, update all the models and forecast and say, okay, this is where we are now. It is where we need to go. Now we've been in a great market, so everything has been positive, and so sometimes it's hard to see how much better you could be when everything's been positive.

But when you start doing that proactively instead of reactively and doing it ahead of time, you dial in cash management to a level you know most people need to do. They're not looking out for 18 months, and knowing how many dollars to reserve today to hit a future need 12 months from now.

To the penny, you can still max distribute every month instead of distributing every month and getting to a point in the future and going, oh man, we need to reserve more cash because we have this thing coming up. You're looking so far out.

And being proactive about it, that your cash management becomes built into the system to where when you go into distributions every month to decide to distribute to investors, all everything has been taken into account on what needs to be considered for the next 18 months so that you have the maximum amount of cash that you're going to need, plus you can send out the maximum amount of cash.

And we've built all that into our system so that it happens automatically, so we don't have to think about it. And it's just a part of the process and how we get to every month's distribution meeting.

Chris Powers: Okay. We've talked about our property management team the last couple of years we've brought on third-party business, and some people ask, why would you take on third parties?

What's been the reason that we've decided to do that?

Steve Bailey: It was an opportunity to show other groups what we can do. We've slowly but surely built this up to something we're proud of. And the value we provide for assets that we could provide to other groups and other assets.

And additionally, it was just another way, going back to the Core, just another revenue generation stream. And so far, it's been great.

Jason Baxter: I was going to say the data is also a huge component, not just for us, but for them because otherwise, they would not be able to track the data the way we do because of our economies of scale.

We can offer them much value to see their assets more clearly and be on top of them better than they could. And it also gives us the market insight into what's happening with their property to ensure we're sharing because, remember, our property managers are helping advise them.

And they're not just using their data, and they're using ours, right? So our property managers are helping their assets perform better based on what we're seeing and vice versa. So it becomes a win-win. And so when you can increase that economies of scale, it's just more data. And so it's more for all of us to make better decisions.

Chris Powers: We currently third-party manage a million and a half square feet. We have a million we're onboarding and goals to surpass that. Just describe what a great third-party client's business would look like. What would be a good fit for us?

Steve Bailey: Yeah, for sure. So our guiding principle on teaming up with another client as A wants to ensure our values align, right?

So we're like-minded individuals—and then B, honest, open, clear, transparent communication. And then C, from an asset perspective, we only want to manage assets that we would want to own, right? So if a multi-family group reached out to us and said, Hey, we've got these 250 units, we'd love for you guys, the answer would be, thank you, but no, thank you.

Chris Powers: That's an excellent way to put it. 

Steve Bailey: No, but hell no. So we want to make sure that we are, yeah. Aligned again from a core values perspective and then from an asset perspective.

Chris Powers: The size matter. Does geography matter? 

Steve Bailey: Certainly, yeah, so geography is critical. We would only want to manage something with a team on the ground, so San Antonio, Houston, DFW area.

We'd love to manage more assets in those cities. We have assets in Memphis and Orlando but need a boots-on-the-ground team in those areas. So we wouldn't manage in those locations yet.

Chris Powers: How do we communicate with third parties? So we've talked about how we want third parties to communicate with us.

Sometimes the third party needs to learn how they need to be communicated to. How do we communicate with them?

Steve Bailey: So we have a weekly standing call with every client, and that is to make sure we're all on the same page. Update from new leases that have come in, any move-outs that have come in, CapEx spends, you name it.

So that's typically an hour-long meeting with each group that we manage. And then, a lot of it depends on the client. So I consistently reinforce to our team that we're third-party managing; we must ensure we got our customer hat on.

These are our customers. Have we gotta with them? Sure, we're going above and beyond. So if one of them says that they like to be texted every Friday morning when you sign up for third-party management, they're specific things you're signing up for. And so we have to ensure we're advocating towards the customer.

Chris Powers: And We have different clients; we're our clients. If you had to describe how a great client is set up to receive it from us, what's it like on their end? They are the best ones we work with. They have X set up in their office, and they have the resources. They have a particular designated person, like if somebody's listening to this thinking, I might want to work with Fort; what do I need to have on my end to be prepared?

What would their team look like? So that we're communicating well. 

Steve Bailey: Yeah, great question. So they would have an individual that was, typically, an asset manager dedicated to the FCP account. So that way, all communication is going through one centralized person. It can get messy when the team tries to get information from six people. It's time-consuming, it's frustrating, and it needs to be more organized. So a centralized asset manager. And then the other thing would be knowing a lot of groups when you ask them, so you know, what exactly are you looking for from your property management team? It boots on the ground, but from an accounting perspective, what do you envision, and how can we help?

You get a lot of deer in the headlights looks, and they're like, we're going to do our accounting. And then, we have to define what accounting is. And so critical is clearly defining the financial reporting, what you want to see, and what you expect.

And on the accounting side, accounting for some people might mean one thing, but for others, it means another. So Cash racks, who's going to do cash racks? Who's going? Or are we going to collect the rent and post it? Or are you guys going to do it? So there's a lot of nuance there. So clearly define the services you would like us to perform.

Jason Baxter: Yeah, and I would say the only thing I would add to that is that when we talk a lot about this because every client does have their own need and some, as you said, wanna do their accounting, and sometimes they want us to do the accounting. But you only get the total value of what's possible at a property once you centralize everything. There are too many chances for communication, breakdown, error, and all those things, right?

An ideal customer or partner for us on third-party management would be someone that ultimately sees what we're doing for our properties and says, I want that. And it allows us to create what we do for ourselves and them, including so they can get the reporting the same way the dashboards the same way so that we can show them how efficiently a property can be run if they. I'm not saying our way is the end all be all, but we know how to do it the way we do it.

And if somebody allows us to manage their properties precisely how we manage ours. Almost always, it's more efficient. 

Chris Powers: And so you just answered my next question, which is some people might ask how do you manage ours differently than the way you manage yours? Is there any difference?

Jason Baxter: Well, Steve and I talk a lot about this. We not. So we take an ownership mindset to everything they do. So Steve, specifically, like everything is treated at the same level of importance and urgency and care what the third party partner wants or needs is up to them. So that is the only difference.

But what we think about and want to do is the same regardless. That's what I'm saying. So ideally, if we could do it exactly the way we do, it would be perfect for us. But we understand that's only sometimes the case. 

Chris Powers: And this is something I've been asked a bunch, I think you all have. Which, again, is so underrated and much harder to achieve consistently and proactively.

Do we offer re-forecasting for other groups? That's different from what a property manager would offer. 

Jason Baxter: That's a great example of something that if they allow us to do what we usually do, which is all the accounting, all the rent collection, all the booking, all the cam recs, if we do all that 100%, it's already built into our system, and how we do it, we would 100% be re-forecasting for them because it's already built into the system.

But we need the information to do that when they control an aspect. And that's a great example of where the value sometimes might be less for them, but that's a choice they're making, not because of something we can't do. 

Chris Powers: And this comes back to if they have the team already built that we're able to work with, they probably have the portfolio size.

To match it, is there a minimum requirement we want to see? 

Steve Bailey: It's case by case and depends on the asset, the square footage, and the tenant count. I wouldn't say there's necessarily a minimum requirement. Most groups we currently work for have a significant footprint of over half a million square feet or more, but we certainly would only look at something if it were a specific square footage.

Jason Baxter: The scale of our capabilities and what we bring to the table eliminates a specific size of clients that might come to us. Suppose they have a 10,000-square-foot building. We're way too much; we're way too big too. They don't need us. Based on what we're offering, if we presented a plan to someone to manage their asset, it would be too much for a particular size building.

So that inherently weeds out too small. 

Chris Powers: And last question, if a third party was thinking about working with us, How do they engage with us? What should they have prepared? What does that look like from the day they call us to when they're onboarded? 

Steve Bailey: Yeah. More information, the better.

So they can reach out on our website and inquire about us there, but the detail of the type of building, square footage, number of tenants, year, and the property was built. The more information we can get, the better because it'll allow us to act quickly. We often get reached out, and there's a lot of back and forth with just fact-finding of Hey, what about this?

Oh, let me get back to you. Or, Hey, what about that? Oh, let me get back to you. So the more information, the better from a tenant perspective and a building perspective.

Chris Powers: And assuming that people had their information in line, how long would it take from the first call to being able to start managing their properties?

Steve Bailey: Great question. So there are two. There are two scenarios. The first scenario is they are in the process of acquiring an asset. They still need to own it entirely, but they're going through the DD process. They're closing in 30 to 60 days and being proactive. They tell us that we can start managing day one in that scenario and that they close day one.

The second scenario is an asset that they've already owned. They currently own it. It could be with an existing property management group or not at all. That is a bit heavier lift, especially if we're doing the accounting, Because we've to get all of the financial information, all of that data uploaded into our system.

That will be more of a 60-day turnaround from an onboarding perspective because of all the data that needs to go into the system. 

Chris Powers: You just brought up an interesting point, a third party that's buying a deal, and we talked about how property management works with Fort when they're buying a deal, but how do we aid in those folks when they're buying deals?

How do we participate in their decision-making process? 

Steve Bailey: Yeah, so 100% we, one of them, I would say one of the benefits that we provide is where the market level expert, so the areas and the cities that we're operating in and third party managing, and we own lots of assets in those cities.

So we know the vendor base what rates. That can be had. What things to look out for in DFW? We know the soil could be better. So if you're buying an asset in DFW for the first time, you should get a structural engineer. And so able to lend our expertise. Thanks to our deal team internally for it.

We've got a ton of reps at property onboarding, and the PM team's done a fantastic job of leveraging that and being just there as sometimes just a sounding board too. Hey, I'm thinking about this. What do you think? Yes, absolutely.

Chris Powers: Do you have a quick like story or an example of when we were going through that process, like a specific thing that happened that maybe we helped him get a better deal or maybe not do the deal at all or maybe create a better budget?

Steve Bailey: Yeah, so one, 100%. It happened about a month ago. We were in Houston touring an asset for a client. They were set to close, and another 30 days or so, and as we were walking the property, property manager Kelly and I saved the money on the fire suppression.

But as we walked through the building, we noticed a distinctive hump in the foundation. And we just pulled the client to the side after the tour and said, " Man, I would look into that; that's not right. And I would hate for you guys to close on this asset. And then, 30 days down the line, you've got a six-figure foundation repair bill headed your way.

And sure enough, they engaged a structural consultant. There is a foundation issue, and the deals dropped as of today. So that's a massive win. I would've loved to have managed another asset. Still, that value and transparency there and us just giving our honest, positive feedback saved a lot of headaches for everyone.

Jason Baxter: Yeah, that's an excellent example of everything we do having to be accretive to what we're doing. There's no need to go out and get more business. So it has to fit what we're already doing, has to fit our flywheel, and has to be a good decision. So when he's saying we give them good advice, it's the same advice we would give ourselves.

We're not trying to get more property management businesses to have more property management businesses. There's no value in us creating that headache for us internally. 

Chris Powers: Okay, I'll wrap this one up; why do you think there are many third parties? There are a lot of third-party commercial management companies that won't even manage this stuff.

It's for many reasons, but why can't they do it? And we can. Why do we commonly hear that third parties either won't do it? There may need to be more fees in it, or it's too much work, too many tenants, but why can we do it when most people in the industry say it's something we don't want to participate in?

Steve Bailey: First and foremost, it's our flywheel. It is humming. And so in the cities that we have boots on the ground, property managers, bringing on a new client in the space they're already very active in is relatively easy due to the efficiencies in the economies of scale we've already achieved in our portfolio.

So if we had a third-party client call us today in DFW, Houston, or San Antonio and said, " Hey, got this deal. We're looking at buying and love for you guys to manage it. There's work involved to get it onboarded, but it's not this big massive undertaking, and we've done it hundreds of times, so it's pretty seamless.

Jason Baxter: From a macro perspective, it sounds essential, but not. The asset class has never been standardized, not. Not at the specific buildings that we're buying. Since we've been in it, it has started to be, and it has made much progress. Still, even from a property management perspective, the institutions that buy them and hand them off to even large property management groups manage them, not detached, but from afar, suitable?

And so they throw minimal resources at it and manage it simply because of the nature of the asset. But I think the biggest reason why it hasn't made this transition to being more efficient or adding technology is simply because of the segregated ownership of it, or however you want to say that, there's been so much small ownership and old ownership of this asset class for decades that it's just been running the same way. It's always been run, and if you don't aggregate something, bring it into the 21st century, like rent collection. It'll just stay that way for a long time. And I think when you look at this asset class, it's not sexy.

And if you look at an old building, people think, oh, that will keep getting worse. And eventually, it'll be gone. That's how people think about it. And so they don't put the resources in it to make it work better. And there are only a few groups like us willing to take on the task.

And so when you add in things like our flywheel, we're one of the few groups out there that said, we're going to take this and not just buy industrial real estate, manage it. We will do it differently and better than anyone's ever done it. And that's including the groups that are already really great property managers at other asset classes.

And we've hired some of those groups, like some of the best office assets. Property managers in the business manage ours. And it's not that they don't do a good job; they don't go above and beyond and think about how to take this asset class to another level. And that's what we're doing. We're figuring out how to take it to a new level to become seamless and have very low entropy.

Because when you do that, all the value trickles down to the asset. And that's where we're headed. 

Chris Powers: Great property management is leasing buildings, keeping them well occupied, building relationships with tenants, and making sure the actual structure itself remains in good condition. And the thread throughout the entire conversation, I think will bring it home on this, is that we treat properties, whether our own or third parties as if we're owners.

And that's not just the three of us sitting around this table. That's everybody in our company. And so the final question might be, How do we incentivize people to think like owners? And we've touched on it at critical points, but let's bring it home on this question. What are the incentives in place that make our team so onerous and dedicated to driving value to these assets?

Steve Bailey: Yeah, so we every, so not just property managers, every single team member at Fort Capital has a particular detailed aligned incentive plan that essentially rewards them when Fort Capital does better, and they go above and beyond, everyone wins, and so from a property management perspective, they're incentivized at the asset level.

So if they are collecting a hundred percent of the rent and keeping expenses down, they're maintaining and building relationships and the tenant retention and just knocking out of the park, that asset will be thriving, and they will get to participate in those bonuses. Another unique thing that we do is that our team's feedback on this incentive program has been fantastic.

And that is, after a year of employment at Fort, we allow every team member to participate in the co-invest. We're giving folks that would not usually get exposed to getting into commercial real estate deals and being able to invest that opportunity after one year. And so you want to talk about the owner's mindset like they are an owner in the deal. So they're participating in the deal that we're internally managing. So you talk about win-win scenarios. I've got a manager that has invested their hard-earned money, their own money, in the deal. There's no better reward for us because we know they've got skin in the game.

Chris Powers: All right, guys, this has been awesome. Thank you for joining us. If you've listened to this and you're interested in learning more about what we have going on at Property Management, you can go to FCP management.com. You can fill out a form there, and one of our team members will contact you immediately, or you can learn more about us@fortcapitallp.com.

So thanks again for joining me. 

Jason Baxter: Thank you. Awesome. 

Steve Bailey: Thank you.