#283 - Levi Benkert - Founder & CEO of Harbor Capital - Building a Class B Industrial Empire in Texas

Chris Powers: Levi, welcome to the show. 

Levi Benkert: Thanks, Chris, Excited to be here. 

Chris Powers: A fellow class B industrial compadre. It's been a long time coming. I thought we would start maybe a little bit just of your; let's start with your background.

Levi Benkert: So I'm going to go way back; in eighth grade, I decided I wanted to learn more than school could teach me, and so I dropped out, took my GED, and I started reading everything I could get my hands on about business leaders and people that had shaped and changed the part of the world that I was interested in, which is business.

I got married young and am still married today; she is fantastic. We have four kids, and I started flipping houses early, so I've only ever worked for somebody else once, and that was for six months as a welder. I had a job, flipped houses for a long time, and started a coffee shop with my wife.

Two locations sold it. We did it for 18 months. , and had a successful exit and kept going. 

We were flipping houses while doing the coffee shop but realized that real estate was the far more fun, the more exciting thing that I wanted to do more of.

And so I just got rolling there. I still can't believe banks were as free with loans as they were back in the day. But I could sometimes buy three or four houses at a time, fix them, and do most of the work myself. Sell them and just profitable, over and over again.

And then I came across a unique property, and this is all in Sacramento, California. 

Chris Powers: And what years was the flipping happening? 

Levi Benkert: 2000 was the first one. 

Chris Powers: So this was early two thousand.

Levi Benkert: Good timing and then lousy timing right now.

In Early 2000. I came across a property that had five acres of extra unused land.

That was worth more than the building itself, the house itself. But this was the most expensive house ever sold in the city. And a vast, like 6,000 square foot house with a pool and a five-car garage was just a peculiar property. I was 23, and I thought, sure, why not.

I'll buy the most expensive house ever sold in the city. So we bought it, we moved in, and then, over a year, I went through the process, hired a surveyor, did all of the work myself to split the land, which needed to be rezoned first, Got it Rezoned, split it, and then sold off the land—and kept the house.

And I sold the land for more than I had paid for the house. And then we sold the house for more than we'd paid for it in the beginning. At 23, this was the first big launch deal. I made around $900,000 on this one: Wow. But I also realized that I'm not flipping houses anymore.

I'm going to do land way more fun. And so just went from there in that same neighborhood, Sacramento, California. I started buying land, rezoning it, getting to know the city council and mayor, and every other agenda. I was up there with another piece of property saying, Hey, will you know, up zone this one.

And they're more cautious with it now, but I was buying R1 properties and getting them to go to R4.

Chris Powers: Which is what, one unit to four units? 

Levi Benkert: It would go from four units per acre to 30. So a significant increase in the value of the property just by that.

And so did that, and we're flipping a bunch of them to KB homes; they weren't all up to 30, but some of them we got that high on, sold to big builders for years, and had a real good solid business. I kept growing the team. I was 26, 27 at the time, and I Bought a home builder because I decided I didn't want to allow someone else to get that profit.

Chris Powers: You wanted it on both sides. 

Levi Benkert: Yeah, I wanted it on both sides. I brought that in-house, a small home builder, but brought the main guy and his team in, and we started building on the lots that I owned and didn't sell them. In 2008, February of 08, I remember I had an offer from an international group.

They came in, knew my whole portfolio, and offered $151,000 a door for all. I owned four hundred lots, which I had, at that point, no equity. It was all debt or my money in these deals, and I had about $60,000 a door in. So math worked out well. It would've worked out real good if I'd taken it, but I was, no way.

The market's going to be acceptable not doing this. And so turning down what would've been an enormous exit did end up selling one lot to them, and it was about 15, one lot with about 15 homes that could be built on that. But then kept everything else. By the end of 08, banks said no more, and we're not lending on any; we're pulling back all the loans that we're doing.

I had many of the lots I owned and had curb, gutter sidewalk, and storm drains all done. Gone vertical on, I don't remember strictly, 12 houses sold. A few started having standing inventory, and the banks would not support building this real estate.

We're done. And so without the ability to build houses, because there's no debt on them, it just started to unravel, and it was this very frustrating, tough season. 

Chris Powers: As you recall, was it like a slow, gradual decline, or it was like, one day, everything was good, and the next day everything was awful?

As you remember it, how quickly did it happen? 

Levi Benkert: It was quick, maybe because I needed to be more experienced. Some others may have seen it coming more. But not far before, I heard rumblings of it for 60 or 90 days before that. I need to remember the date, September 21st when markets crashed.

It was this big realization all at once; nobody knew. Washington Mutual, countrywide, all these banks suddenly became clear they're insolvent, and you can no longer refinance your house. It's not happening, and you know, you take the debt out of any market, and suddenly it crashes. 

Chris Powers: So they had given, at the time, like a development loan to develop lots and then for at least the first homes, construction loans to start building.

Levi Benkert: Yeah, Often they were combined. So I would buy with either cash or bring in a couple of investors that were typically just debt investors on deals when I would buy them and then do rezone plat map and everything else.

And then bring debt in when we were ready to start construction.

Chris Powers: At that time, you had the private lenders, which I assume are like one-year or two-year loans, and they have a finite time. 

Levi Benkert: Yeah. I had done five-year loans for most of them, so those were expiring slowly, but how do you keep making late payments if you can't sell properties?

Chris Powers: And then on the construction loans, those were whatever they are, one or two-year loans. And at the time, the bank was willing to say that even midway through construction on some, we're done funding the project and leave it as it is. 

Levi Benkert: Yeah, And an example, one project that I had, six and a half million dollars into the project, four and a half of that was debt.

The rest was equity at that point. This was one of the ones in that we had a few vertical houses, but all the horizontal was done, all the connections of sewers, and we had paid the mitigation fees and everything. It was an utterly buildable project, so six and a half million dollars in, and the bank brought a buyer for $525,000 and said we would like to sell this property, and that's it. Unless you devise some plan of several reserves that we would need to have in the bank to do it, but it was evident whoever was buying, it's just going to sit on it for years. 

Chris Powers: Okay So, you get that call, the world's crumbling down around you. Everything you had worked for was being plowed in, then what? 

Levi Benkert: So, like the 25 or so employees, this process of just going through and laying them off started with some people who didn't have real key jobs and then got back down and had a just dear friend of mine that was a very crucial employee.

We had been voted the best home builder in Sacramento for two years.

Just a fantastic kind of marketing engine that we'd built. And that was because Jason laid him off and couldn't pay his salary anymore. He had a liver disease that he'd lived with for years. The stress flared up, and he went to the hospital and died four days later. Oh my gosh. I remember just this crushing weight of guilt, of feeling like that had happened because of me, somehow not seeing what was coming down in the market and structuring this thing.

And then, a few weeks after that, my brother, who'd just been struggling with drug addiction for years, committed suicide. Unrelated, but still, you know, it's all of a sudden your brother's gone.

It was just this, like, cumbersome time. And meanwhile, talking to investors and explaining, you know, lenders is what we had at the time. But explaining to them like, Hey, what do you want to do here? We can keep funding this thing, and obviously, we won't be able to make interest payments.

We can hang onto this property or build it out and rent them out or do something here. 

I remember just spreadsheet after spreadsheet of plans: "Hey, we could do this, and, wait, no, think that's not available. We could do this; wait, this is not available. What's impressive is, and I'm so thankful for these people, several of the more prominent investors just rallied around me and said, tough season, let me help you figure this out. I think my most significant dollar amount, if not he's in the top three today, is someone who lost about 4 million,

Back then. I'm seeing him next week. Excited to go hang out with him. It's incredible that, like, the redemption in t, you're done, you think it was just the end of the road, It's over; of course, some people were just frustrated.

It wasn't just this perfect; I'm not trying to like to paint this rosy picture. It sucks. It isn't good. But so thankful for the people who gave me advice and stood by me. I was one employee, Mike; I still talked to him constantly. He just kept working for free. It was like, we have to untangle this mess. Let's figure out how to do this.

Chris Powers: And how long did it take to untangle? 

Levi Benkert: It took some time.

Chris Powers: So the bank says we're not funding any more of your projects. We're sorry. You have a team you deal with, and you're staring at a project that still needs to be built out.

And they're telling you to quit building it. And then they said, we're just going to sell it, and we're going to sell it. Does that get you off the hook at that point?

Levi Benkert: I don't know if all states have this, but California has a strict single-action recourse. So they can either, even though it's a recourse loan, they can only do one thing.

They can come after you as the borrower, which at that point, All my assets were in this. Yeah, they're not, you didn't have any to come after me, or they can go after the property. And so they're saying, Hey, let's get 10% of our money back out of the property. And so that happened over and over again across a bunch of properties.

No lawsuits came out of it immaculate, considering what happened. And very understanding. I cannot believe how many investors sat down with me, and it was, meeting after meeting for months, sitting down and explaining. And I flew all over the country and sat down face to face with people and seemed like, Hey, so you invested in this property.

It was worth this. And as evidenced by, here's some that have sold, here's what happened. Now it's worth this, as evidenced by what is selling in the area. 

Chris Powers: And it was happening across the country. 

Levi Benkert: It wasn't happening, like just a one-off situation.

Chris Powers: How did you raise money? Online wasn't a way, and you were meeting people all over. How'd you start raising money early on?

Levi Benkert: Friends and family turned into their friends, their family explain, bringing other people in and

Chris Powers: Is there, as you think about, even today and how you've built your new company, which we're going to get into, like what are the most valuable lessons you took from that time?

Levi Benkert: I always say PTSD is the best teacher. 

Chris Powers: Is there something you could have done differently than in hindsight? Less leverage, some, like, was there even the sale? There are a lot of people that wish they had sold.

Levi Benkert: I don't know. It's hard to argue that I over-leveraged.

If you got $60,000 ar, they're worth 151, and that's a pretty conservative loan t-value ratio. Indeed, don't start a construction company and wait to start home building. Be more specific in one vertical. So greedy about getting them down.

Like, take the money off the table throughout. I would've been sold off half or more of the properties, and offers were constantly like this. I was sitting on a gold mine of properties in a neighborhood in downtown Sacramento where I had cleaned up myself.

I was buying trailer parks, clearing them off, putting those people in apartments, and paying for a few years of rent. And this was a bad neighborhood. And when I was done with it, it was lovely, and you can drive through it today. All those projects have now been built, and it's gorgeous. It's just amazing when I got there, it was terrible, and so had I been kind of less greedy in trying to squeeze the most value out of every individual deal, I would have had a smaller portfolio and would've probably been sitting on the couch to be able to say, Hey, we're googling to mothball this one. 

Chris Powers: Here's what that looks like, were you, they always say like, Build a close relationship with your banker because when things get tough, you know, one, its track record, but having a, did you have a relationship with the bank at that time or was it just money from any banker and there was no relationship there.

Levi Benkert: Several big banks. They all handled it exceptionally well. I'm thankful for that. I mean, it's terrible, For them to call the loans, but this all came from up high, and it was not. The local branch officer said, Hey, we looked at our portfolio; we're picking on you.

Chris Powers: That's what you get with the big bang.

Levi Benkert: Yeah, exactly.

Chris Powers: Have you ever thought and maybe looked at the market? I know folks that went through something similar in other markets. How quickly the market rebounded? If they had let you keep the loan.

Was it by 2010 or 2011things had rebounded, or was it a slow grind back, you know?

Levi Benkert: No, it wasn't until 2015 that they were getting built. And even that many of them were because those were possible to rebuild because whoever bought it at such a low basis. 

Chris Powers: Okay. So you start a coffee shop with your wife, sell it, go on a real estate tear, and do well, and then 08 happens, which happened to many folks.

And then you went to Ethiopia.

Levi Benkert: That was a stressful season in our marriage. And she was this rock throughout the whole thing and just entirely there with me.

We had kids at the time as well. She was the driver behind after it's all cleaned up, and it was like, all right, I'm trying to figure out, start another business or get a job. She's the one that said, Hey, let's do something different for a little while. And we'd heard of a situation in Ethiopia where kids needed an orphanage. Still, no organization existed as this short-term group of college students had gone over there and found out about this situation with these kids and started collecting them and putting them in the house.

They were all leaving and going home, so we went over thinking, I don't know, six months, maybe a year. We'd do this reset as a family. 

Chris Powers: Did you visit Ethiopia first?

Levi Benkert: I did. Jesse didn't. She was pushing for this; why don't you check it out and see if we could make this work?

We packed up and moved the whole family. We had three kids at the time, and we adopted our fourth while we were there. We moved to a little town called Jenka, an 18-hour drive on mostly dirt roads from Addis Ababa, Ethiopia's capital city, and rented a literal mud house.

The walls were man out of mud and ground it out. I built this, first just renting a building and then building more. When we got there, nine kids kept coming and coming in.

Chris Powers: Did the government give you? Or how'd you get the money to fund the orphanage?

Levi Benkert: So some people back in America were helping raise money, and different churches and groups got together. It was when Facebook was cool back in the day, and Facebook is what Twitter has, hints that it could be lately. And so we started a Facebook page and just started talking about it.

And I would go on there and write, and I was blogging too. When we had internet access, sometimes I was dictating over the phone a blog post that I had written that would then get posted, and I started a 501 C3 in America and just started raising money for it.

Chris Powers: And you built an orphanage?

Levi Benkert: Yeah, built an orphanage. They are still going today with over 200 kids. That has been rescued. Several of them are now graduated college. One of them is a doctor, and one's an engineer. The model is, and this evolved, we rent tiny houses in the community. And then put a widow from the local community and five or six kids from the orphanage there with her. And it's basically like building a family unit. 

Chris Powers: Give me a picture. What's it like to move to a third-world country? You've been on top of the world for your prior career doing real estate in California, and now you're in a mud hut in Ethiopia.

What were those first few months, year? How can you describe it?

Levi Benkert: Extremely humbling, but also puts it all into perspective. The money becomes so different; you realize how unimportant it was and what I was striving for and putting everything into it, but working there was so much fun.

Honestly, I realized after a couple of months of being there, Because I'd read all about John d Rockefeller and Andrew Carnegie and Thomas Edison, and was just fascinated with this kind of turn of that century 18th and 19th-century time in America where it was like so much opportunity existed. So little regulation stood in the way.

And so it allowed you to come in and dream big and create something. And getting there, it was like the structures didn't exist yet, and I felt I could dream them and speak them into existence, pull the resources together, and make it happen. Within a short time, we'd built a whole organization over there and hired staff and done all of this, and it was so much fun to like to build something somewhere that was desperately needed.

Chris Powers: It's non-profit, but you could still answer it similarly. Like how is business there done differently than in America? 

Levi Benkert: I got into business there quickly because we needed a work permit to stay okay. In Ethiopia and you couldn't get one under a non-profit. So I had to start some businesses there and started four different businesses in Ethiopia.

Good size. So one was the largest beef feedlot in Northern Africa. Had that was the biggest in terms of employees. We got to 3000 employees. We had 8,000 acres of land, grew all of our corn, had a beef processing center feedlot, and exported 2 million beef out of the country a month. 

Chris Powers: And does the government help you fund that? Or is that private capital raised from locals?

Levi Benkert: Government gave us the land. But we were raising money from US investors; big institutions like the Norwegian government were big investors. We said, Hey, we can create jobs and a market for local farmers here, but this needs to be addressed.

We will have to do it at scale, and we will have to bring in these foreign people who know what they're doing to come in. 

Chris Powers: I was going to say there is the labor and the skilled labor there; you have to train everybody.

Levi Benkert: No skilled labor, but there's a lot of labor. And they need jobs badly.

 So built several businesses that were fun from a business climate perspective; there are a lot of local banks there that can lend on projects. There's a lot of equity available worldwide that's looking to invest in things that do good.

One of the other big businesses I built was a real estate development business building apartments that would rent to the US government. We would take our kids to a swimming pool at one of the hotels there. And we started meeting all of these embassy families and talking to them, and they're telling us how bad their housing is and how much they pay in rent. It's staggering how much they pay in rent. And I was, I can build you a building, and let's do this. And so I started a business that built and is still going today. I sold all of this in 2019, but it builds rented apartment buildings. The state department in the US rents them for staff housing.

And so the first one was 150 million buildings in Ethiopia, Kenya, and many So when I left, a 1.1 billion pipeline of properties was at some point in development. And the government's just like, if you can build it to this standard, and they gave us a whole book of seismic and security and all these different things we have to meet, but if you can meet this standard, we will rent it from you indefinitely.

Chris Powers: Was it foreign contractors or local contractors that could build it? 

Levi Benkert: Mostly foreign like team leads, but then local labor

Chris Powers: This is the dumb American question. Do they have zoning laws and permitting, and is it similar to America, or is it more the Wild West? Pick a piece of land and build it if you can build it.

Levi Benkert: It's similar to Houston. Where there is some zoning, and there are some plans, but it's tight enough. It's more just who you know. And my job was business development lead. I would hire the team to execute, but then I would go to a few projects on which we needed the Prime Minister's signature. I would sit in the Prime Minister's office and wait, and one time, I was there 11 days a row, and he just kept not meeting with me; finally, the lady came out and said, he wants to meet with you. All right, great.

Chris Powers: Was there corruption or anything? Did you have to learn a new way of? Community, like, does a business get done in a way where at least Phil, in America, there's a lot of trusts built in the system, there's legal, there are repercussions, like does that infrastructure exist?

Levi Benkert: In Ethiopia, the culture is very passive, so that no one will steal from you. You can walk down the street, and no one will beat you up and try to steal, but if they can slip their hand in your pocket, they will. And so that comes throughout the whole culture.

There was no flat outright corruption, like no government officials calling us and saying, Hey, you have to pay. But there was, they would call us and say, Hey, I know you're hiring. My cousin needs a job. Okay, fine, we're going to hire your cousin. We have to do that.

Chris Powers: So you spent six years there. When did we ride on the wall during our time in Ethiopia? We're going to head back to the States.  

Levi Benkert: We have two biological kids. Our youngest two are adopted, and we adopted the fourth while living there.

She came into the orphanage as a newborn, just a couple of days old, and we adopted her. Unbelievable. She's 14 now. Our oldest was starting high school, and it just was; we had to have some home-country experience. I started all that, and I was running everything over there.

We had a business partner who was based out of Austin, so that's why we moved to Austin. After this, Austin became the headquarters for this international group of businesses.

Chris Powers: It's a suitable spot.

Levi Benkert: It's a good spot. I like Austin.

Chris Powers: So, when did you move back to Austin? 

Levi Benkert:2015. 

Remotely, with that partner going back, traveling a lot, which was a stress on the family that was not the best decision. It came to a point where it was like, Hey, I'm always on the road. Like if there's a way for me to exit this and start something locally.

It's time to do that. And it was a conglomerate, beef, and real estate business. I also had a big consulting group and a chain of medical diagnostic centers and sold them together. My partner bought me out, brought in a private equity fund, and took me out, which was fantastic. Good timing.

Chris Powers: Now let's get to the good, not the good stuff. It has all been good, but did you take some time off, or did you already start to have an eye on Class B industrial? How did Harbor Capital come to be? 

Levi Benkert: It took some time off. It was in; it closed in January 2020.

So this was right before Covid hit—good timing on that front. None of us knew what was coming in March of 2020. It Was fantastic. Was this, Great timing to be with my family? We just closed this thing and didn't have to go out and work. It gave me time to think about what's next.

I'd been an LP in industrial deals and knew it was real estate; whatever I did would be real estate. I looked at various markets and drew a circle around the home, saying I didn't want to travel that far and wanted to do something that would work in Texas. Our family loves living in Austin.

What can we do based on here that's real estate, but it is also non-consensus. So many other markets are saturated, and the class B apartment flip was already like everybody's doing that. And industrial was drawn to the triple net lease.

The Non-dramatic nature of the tenant relationships, which is non-consensus, means just a few people are looking at it. And it was one of those markets I could get deep into and had a lot of runways. And so started Harbor Capital in February of 2021.

We just passed two years. I bought the first few deals to test it out and ensure it worked, and it did well on those. And it then started bringing in LPs and growing it fast.

Chris Powers: Did you know then that you would stay hyper-focused on just industrial, or even in February, likes to do deals?

Levi Benkert: Yeah. I've got this paper I'd written before even choosing what Harbor Capital would be. And it was obvious that I was going to be hyper-focused on something; whatever market I would find had to meet all of these criteria and be able to head down.

Chris Powers: Okay. As you sit here today, let's go through the things that still may be true, that you thought to be true then, but that you've learned over two years. Have you even niche within Class B? Or do you do a lot of single tenets? Talk about how you look at deals, what you're looking for, and what's like a fastball deal.

Levi Benkert: Yeah. Close-in is a big deal. So we're only in Houston and San Antonio, our two markets. We've tried to put together a couple of deals in Austin and have never found anything penciled. But love, I can sing the praises of those two markets, and there are many runways left.

We're nowhere near coming to anything close to a problem in those markets. There needs to be more stock and tons of demand. We like older buildings, but not too old, and then Seventies, eighties, nineties, stock, single or multi. We've got some multi-tenant deals. We like these 20 to 50,000-square-foot single-tenant deals or 150,000-square-foot multi-tenant with many small units.

We've got to have some value add components. All of our underwritings assume interest rates are going to get worse. Since day one, it's been this. Interest rates are going to get worse, property taxes are going to go crazy, and rents are going to go down. And so, with that filter, we pass on almost everything.

We're just not looking to buy stuff like this. But we find the deeper we get into these markets, the more we learn the owners' names and bring them a bottle of whiskey for the fourth time.

There's some gift, or start dropping in and saying hi. Eventually, we find deals, and people say, " Okay, yeah, I'll sell to you. And we can find the value add that we like the most, something that's occupied with a couple of years left on the lease but a meager lease rate.

We can come in and stabilize, and we've found properties above the going-in interest rate. And right now, we're buying, we've got a bunch of stuff in the contract that's 10 and 11 caps stabilized within two years. 

Chris Powers: And stabilize being, as you said, a single tenant with two years left under the market.

And you're underwriting that you'll either mark to market or they'll go vacant, and you'll bring in a new tenant. Do you buy anything vacant? Have you ever bought something that's already vacant?

Levi Benkert: Some of the best deals we've done have been these where we go in and can steal them.

Like it's incredible the deals you can get when you buy a vacant building. 

Chris Powers: What insight do you have on a vacant building that the current owner may not have or the market doesn't have? 

Levi Benkert: If we've been trying to figure this out, What does a good seller look like?

Chris Powers: And I will ask you about your tweet the other day that your data finds many of them.

Levi Benkert: Conspiracy theorists. Yeah. It's so funny. That is a peculiar finding, but it's true repeatedly. Some people need to be more trusting of professionals. A broker shows up and says, I can do an excellent job for you. And they're like, get out of here with your stupid 6% crowd.

I don't want to hear that. I know what's best. I'm moving, I moved. We bought one from a guy recently. He told me he's moving to Montana and buying a bunch of AR who got already, has got the AR fifteens already moving to Montana so the guy can look down on all the peons below and doesn't want to see another soul in his life and he's just getting out a dodge.

He sold us a building for $94 a foot that we've turned over tenants to him, where our last lease was at $14 a foot that was signed. It's incredible, triple net, $14 a foot. So this is like a 12-and-a-half cap.

Chris Powers: You're probably converting gross leases to triple net leases.

Levi Benkert: Yeah, that was a multi-tenant, and it had all gross leases, and we've been able to convert them all. 

Chris Powers: So is most of your deal sourcing off-market through the broker channels or a lot of cold calling and door knocking?

Levi Benkert: Most are off-market but have yet to be directly sourced. We've just got a couple of grand, not a couple. We now work with a dozen great brokers that know what we're looking for.

They're cold calling and finding stuff for us. 

Chris Powers: What must you look for in Class B Industrial?

Levi Benkert: That's a good question. Specialized in any building with one or two units, one or two tenant types must be used. That's a mass. And so we want to be flexible. I want, I always joke, a gymnastics facility. We've got a big metal plating company that we're leasing to a building right now, or a third-party logistics or a plumbing supplier.

I want this building to work for all those, so we're not stuck in one market. We've done a couple of oil and gas leases. Those are always giving me some heartburn because that market is so cyclical. But Houston's got a lot of them, and they pay well. So Yeah.

We'll inevitably run into them.

Chris Powers: And on the, going back to like leverage and financing, how do you think about that? 

Levi Benkert: We started talking about 2008, extremely conservative. We want, and I don't mean loan to value because I'm not too fond of our purchase price is always so low compared to what we're going to stabilize at.

I'll take a 70 or 75% loan to purchase a cost loan, but I want my D S C R my debt service coverage ratio to be excellent. We've got considerable reserves in place and a lender that understands this might be vacant, especially on a single-tenant building.

This one might be vacant. We've got two years' worth of reserves sitting aside here. And here's the playbook, we'll use debt, but conservatively.

Chris Powers: So, on the single-tenant buildings, you'll sometimes underwrite up to two years of vacancy if a tenant were to vacate.

So we could afford to keep leasing and carrying the building for two years. 

Levi Benkert: Yeah. Every deal we do has substantial reserve funds, which is good from a banking perspective because banks love us when we come to show up with some of our deals with multimillion-dollar reserve funds.

Lenders love that. They always require that some of that be locked in so that we have a certain amount of interest reserved, but then the rest sits there and waits if we need it.

Chris Powers: Do you do all third-party leasing, so do you hire third-party leasing brokers in specific markets to do certain buildings?

Levi Benkert: Yeah, we've got. It'll need two markets. So there are a couple of favorites, depending on the unit type. And Houston has a C B R E broker that is great for the more prominent buildings. And then a couple more petite guys that, if you're renting a 10,000 or 5,000 square foot space, it's not going to be one of those big, been in the market for 30-year brokers.

It's going to be somebody smaller, and it's going to knock on doors because that's what it takes to get a small lease.

Chris Powers: You started buying in February 2021 on some deals the tenant had two years left. Have you had one where they've had to either renew or leave, and did they renew or leave? 

Levi Benkert: We've had several because quite a bit of what we've bought had five or six months left on the lease. I almost always renew and don't have a problem saying, " Hey, here's the comps, and here's what's happening in the market. And they'll, every one of them will go out and look and talk to a broker and then come back and say, we don't want to move.

We want, we'll pay the market rate. Let's go.

Chris Powers: Yeah, we found that a lot right now. You'll see tenants come to renew, they'll get the renewal rate, and they'll shop the market. And then you hear from them a couple of weeks later, and they're like, we're going to stay put. 

What's happened to rental rates, as in Texas, has been astronomical, and even to this day, they continue to rise.

There are a lot of tenants in the market, as you know. 

Levi Benkert: Yeah. This morning we discussed this in the office today; there's this attractive real estate. You have national trends, which are interest rates and cap rates changing because of interest rates going up and down, and then banks' willingness to lend.

And so that's going to put a force on the market. And then you have these local forces, which are just demand tenants who want space, and Texas Industrial is going through this moment right now where we've got a ton of demand and then this pressure from above or from the outside right of cap rate.

You know expansion and interest rates are complex, but what happens is inevitable now is the pipeline of new development is just being cut off. I talked to a guy yesterday that had 1.5 million square feet that he was getting ready to build. The whole thing went under the shell, done.

That is not going to happen. Over and over, That's happening. And so the demand is still there, right? Supply is getting cut off. And so we're going to end up very close to we're on a crash course with very close to 0% vacancy, which is just going to put continued upward pressure on pricing.

I don't know what you guys are finding, but so far, the interest rates are just a non-issue because the rate because lease rates have so much—upward pressure. 

Chris Powers: Yeah, I don't know if it's different for some of the single-tenant stuff you're building, but especially the stuff we're buying inside-the-loop multi-tenant you can't rebuild.

It has been the last ten years since anyone has built it. It's re you really can't replace it. You can go out to the sticks outside of town, and Of course, yeah. And build, but I wonder if that's different in the 50,000-foot warehouse space. But to what you said, many people will say, look at these numbers.

There's a record industrial space under construction. Even though we share the word industrial, it's a different asset. We're not competing with those people. And as you said, our little niche has yet to be rebuilt. And like you said, there isn't be now, even if there was, and tenant demand has gone nowhere but continues to climb.

Levi Benkert: Yeah. Every lease we've signed has been at a higher rate than. The one before it, and that is not slowing down. 

Chris Powers: I thought one deal you did, in particular, was attractive. Let's talk about the forward deal you bought in Katie. Yeah. Describe how that all came to be.

Levi Benkert: Two different projects that we're doing there. A total of 350,000 square feet. A broker that we've done a bunch of deals with there had a good friend of his that's a contractor that builds industrial, so it's an urban company that's called, they are a Houston only, industrial only, tilt wall only builder that churns these things out day in and day out.

He had bought a couple of parcels of land many years ago at a meager basis with the thoughts of the owner of the urban companies with the thought that he would eventually build out, build to suit individual buildings on these over time. And he was waiting for the time and had already designed a couple of industrial parks, and he was getting ready to do this.

And this broker came to us and said, Hey, why don't we get the two of you together and discuss what could be done? And so over, it took six months to negotiate this, but we made a deal with him. These will be, they will be done within the next 60 days, and we're buying both of these as soon as they're finished from him.

And so these are class A tilt wall, 28-foot ceiling, fire sprinklers, dock high doors offices built out like a class A office space in each of these like level five smooth walls like these are just gorgeous buildings. They're between five and 40,000 square feet across these two parks in Katy, which happens to be right near the Tesla factory is going in.

Chris Powers: And you didn't know that at the time? 

Levi Benkert: I didn't know about Tesla. We knew, if you drive through Katie, these big bombers, you know these 500 to a million square foot, there's a whole bunch of them, and none of them are vacant. It's just these things have been getting built and leased right away.

And it's Costco's distribution, Lowe's distribution, igloo, the list goes on and on—raw stress for less, man trucking, huge distribution facilities going in. But there needs to be more stock of this smaller five to 50,000-square-foot building. And so we've got a whole bunch of it coming online that I could not be more excited about.

So our going in price.

Chris Powers: Which you negotiated the day you negotiated the price before anything even starts coming out the ground. 

Levi Benkert: More than a year ago, we negotiated the price. So that price, even today, that price to construct is a lot more. But he had bought out all of the materials by then.

So it's working out well for him, but also, we're riding on the back of his seven-year-ago land purchase. Katie is one of the fastest-growing cities in America. His land cost and basis enabled him to make some money on it, and we're just going to kill it on these things. Like, I'm so happy with these.

Chris Powers: Okay. So you say, Okay, Mr. Guy, with land, you will build this project. We agree that at CO. Is that?

Levi Benkert: Yep.

Chris Powers: We're going to close at X price.

Levi Benkert: Yep. 

Chris Powers: A year goes by. How does that work with banks and investors? With investors, you can raise money. Tell them the story, or did you have to put like a deposit down up front?

Levi Benkert: We deposited about 10% of the total construction cost or purchase price. 

Chris Powers: You do that with cash? 

Levi Benkert: Cash, non-refundable. And then I went and lined up debt and got just incredible debt terms. I'm happy with what we were able to get. 

Not the same debt terms we would've had a year ago, but still really good considering that we're buying new significant buildings.

Chris Powers: How soon can you lock in that debt on the forward?

Levi Benkert: With debt, it's at the close when the price is locked. We've got fantastic indicative terms right now.

Chris Powers: That's awesome. Can you start pre-leasing those units even while he's building? Do you control leasing on them?

Levi Benkert: We do, Okay. And we've just started that & we did not expect our business model to have any units leasing before completion, just with this small; we found this always with this small tenant. They want to see what they're going to get. And so we've been talking to Sherwin Williams and a couple of big tenants going in there, but everybody's waiting for them to be done.

It's going to take a little while, though.

Chris Powers: How big are the individual buildings? Like 40,000 feet for one building?

Levi Benkert: Yeah, so they're all individual standalone buildings. They're all parcelled separately. So we can sell them off if we want to over time. One of them is in an opportunity zone, and so that one we're keeping cool for ten years.

But the other is, we could sit if we've got a. National credit tenant, a publicly traded company, we could sell off individual buildings to a 10-31 buyer or something if we want to—a good bit of flexibility. 

Chris Powers: Describe, just for somebody listening, what happens when a group like Tesla announces that they're coming.

Like what did you experience in the market there shortly after or have been experiencing? 

Levi Benkert: Immediately, new brokers who weren't looking at the area started coming in. Tesla, it's funny, this one, they announced the Austin factory years before it started breaking ground.

And we knew it was coming for a long time, and it was fast, but it still took a while for this one. Tesla leased an existing million-square-foot building right as it was getting finished. And within days after it was announced, you saw Tesla cars outside, and they were moving in right away.

They took an existing, a new, existing, million square foot, million, and 50,000 square foot building. 

Chris Powers: Let's talk about the market, like in Houston, San Antonio. We can go back and forth on it. What do you think about it? We can talk about the Texas Triangle, and we can talk about each market individually, but like when someone asks you, what do you think about Texas?

Why Texas? What's your response to them?

Levi Benkert: Yeah. The beauty of how these markets play together, Port Mexico, Geography gets a relatively low cost of land, plentiful labor, transportation hubs, and DFW with the big airport. There are just so many things that play together. To make this just geographical, people talk about Texas, and politics is the only thing; geography is the most important thing.

There are undoubtedly many other things that help; if the pro-business government helps our property tax, it's not necessarily the best part of Texas, then some good legislation coming down the pipe will help. But yeah, we always underwrite to the worst-case scenario, so it always looks better than we've underwritten.

But property taxes could be better when they can be uncapped and go up. 

Chris Powers: Yeah. And many people say Houston has some energy influence far from what it had in the eighties and nineties. But they also forget, like you said, the port, and it's the medical capital of the country.

With MD Anderson and everything that's going on there, the tech scene in Houston is enormous. 

Levi Benkert: I heard recently. I remember the exact step, but 80% of the Fortune 500 companies have a significant headquarters or central office in Houston. 

Chris Powers: Houston's unbelievable. 

Levi Benkert: That port is doing two and a half times the cargo it was doing pre-Covid.

 And then that has stayed steady. That was a, the, all the other major ports in the country got overloaded, and they looked to where to go. And Houston built out the infrastructure quickly. 

Chris Powers: And, like, they announced, I'll probably get the figure wrong.

It was like 10 billion that they announced would go into the port over the next ten years to dig deeper and expand and add new facilities. Which every port in the south-eastern United States is about to get a lot more traffic. As Onshoring comes in, Mexico continues to become robust.

Levi Benkert: And that, neighboring Mexico market is a massive benefit for just the parts that go back, like car parts and assembly parts for things assembled here or assembled there and sold here like that. That is incredible. And that's one thing that San Antonio has going forward.

It's only two hours from the closest Mexican border, and it doesn't seem like it is, but it's right there.

Chris Powers: If you and then, we're not in El Paso Laredo, but you see what's happening in those markets. It's astounding. I'm from El Paso, and I can tell you what's going on there; it's like nothing I've ever seen.

Levi Benkert: It's incredible. Are you guys buying there at all? 

Chris Powers: We'd like to, if anybody here is listening and has a deal, the thing, I won't mention any names that, the thing that I think we look back on, we were trying to buy there in 2016-17, and we could have bought deals for like 40-50 bucks a foot. I'm from there, and a lot of my mentors are. And just people that have been around were buying that stuff for 10, 20 bucks a foot, like when nobody was paying.

An outsider coming in at 40 or 50 at the time was like crazy, and it's probably that bias of, like, had I not been from there and not known anybody, we probably would've pulled the trigger, but that market's gone crazy. So we're looking, we'd like to get there. Laredo is jam-packed, and a lot is going on there.

Levi Benkert: Almost 100% occupancy is 99.6 percent occupancy. Industrial.

Chris Powers: What the heck? I know. And it's going to keep going up. Yeah. Yeah. And as you said, especially a lot of the stuff going on in El Paso and Laredo is the new stuff. And if those go down for a bit, it will create even more or less vacancy and demand.

Do you had a quote, you would say, buy, refi, die. Which is a way of saying we like to hold long-term. What do you think about holding periods? 

Levi Benkert: Yeah, I've backed off that a bit. I love the idea of structuring deals so that we can hold them for the proverbial forever.

Having seen the market dips, sometimes you might have to sell, and I don't want ever to have to sell. Sometimes it might say that differently when it's the wrong time to sell. Sometimes it might be a bad time to sell, and I don't want to have to sell then. And so I structure just based on we're going to be on this rollercoaster ride and in the future, we're going to be way up at the high, and we're going to decide, like, that Godfather offer came in, let's take it.

Or re-fire, do something. But yeah, I don't want to go into a deal with this, like, okay, we're going to be in and out, and it out has to happen here, or else we're screwed. We don't want to do that. 

Chris Powers: It's brilliant. We do the same thing. The way our docs are written, we underwrite everything on a five- or seven-year outlook, but we could hold it or hold it longer.

We could hold it shorter. We hold that discretion, and with many of these older buildings, you can only hold them for a while. As you'd be, buy a building built in the seventies or eighties. 

Levi Benkert: Depreciating appreciation is not; it's real. It's not just fake.

Chris Powers: Yeah. It's not just something you get for free; depreciation's natural, especially in a market like Houston that's a little soggy and wet and, it's true, has some weather. As you look forward, it will continue expanding throughout Texas and other markets, or there's plenty to say grace over where you're at.

Levi Benkert: Yeah. It's funny. The deeper we get into these markets, the more deals we find. So we should only go inside of this for a short time. I'm incredibly impressed with what you've built, but it's different. I want to get smaller than you have. I want to do more. I've got ten people on the team right now, and we might add a few more positions, but I don't want them; how many do you guys have now?

Is it 40 or so? 

Chris Powers: Yeah, I think we have; I will get it wrong, either 48 or 52. 

Levi Benkert: Yeah. Somewhere around there. Love it. My goal is not to get that big but to stay very specialized and do just bomber; I want every one of the deals we do to be this work of art that delivers solid returns to investors.

Chris Powers: Yeah. I think you hit an inflection point where we don't think about it in terms of size or because it even to get to 50 people, you have to build the leadership team, the management processes in place, I'm probably going to, if Jason listens to this, he'll probably laugh. But you get to a point where even as you add headcount, it's different from any continued stress. It fluidly adds positive momentum to the business, but you must have suitable systems, processes, and structure. I get there. I don't think we ever I take that back. For a long time, we dreamed of building an enormous company. Some of those were misguided dreams for reasons that aren't. 

Levi Benkert: It's because we all read Good to Great. What's your big audacious goal?

Chris Powers: Yeah. It's what happened, and, like you, we continue to find a ton of value in the assets we're going after. We do focus over time. We've niched down into the much smaller tenants, but lots of them; I think we have 18 or 1700 now.

Wow. Impressive. But that intake requires a unique management skill, and we decided to build it out. It's the reason why a lot of people say we don't want to do that. It's more management intensive, and you're dealing with many tenants.

Levi Benkert: Yeah. And some of these are almost like trailer parks of industrial.

If you get into the actual small spaces, it's a lot of work.

Chris Powers: It's real work. And it's forced us to a lot of value. You get paid well for doing that work, and you get a lot of data, and there's a lot from it. And again, the smaller the spaces get, I like how you said that deal in Katie had 5,000-foot spaces, and Katie's a great market, but if you're really like inside the loop of Houston, you probably couldn't recreate that property, you're building Like inside Dallas or San Antonio.

And so we see demand and tenant demand continuing to be there and no new property showing up. And tenants need to; those average tenants serve a one to a three-mile radius around them, and it's different than they're driving all over the core. If a new building pops up in Katy, my tenant in Houston probably isn't going to Katy to get a newer space. 

Levi Benkert: Yeah. Almost all the tenants we've talked to in Katy are opening a branch there. They're in Houston, and they want to be, okay. It is a new market with a lot of new rooftops and a lot of new jobs out here. 

Chris Powers: So, are you seeing deals trading, right? As you said, do you have some under contract?

Levi Benkert: We do, yeah. We've 53 million under contract, all stabilized in the cap rate. I mean unleveled yield on cost because that's the only thing that matters to me. Which is the total cost including purchase price, closing costs, the fees that we collect, plus if there are any vacancies or tenant leasing, commissions, and all of that.

I want all that to be in there where a cap rate says, you paid a hundred dollars a foot. And you rented it for $10 a triple-foot net. So you've got a ten cap. It's that stupid simple math. It would help if you remembered that extra costs could be $15 a foot or $12 a foot.

Sometimes you have to replace a roof for something, and all these things matter. So when you look at that un levered yield on cost, I want to stabilize in that 10, 11 range. So that we've got a big gap between our lever deal cost and the possible interest rates, which it did sound like today that they might be going up a little bit.

Chris Powers: As we sit here, Powell raised 25 basis points more, but this might be it. We don't know. It's been a; it's been a quick climb.

Levi Benkert: 10th time is a charm, right? It is the 10th in a row raise.

Chris Powers: Yeah. And the markets bifurcated. People say the word real estate like it's this one thing: marketing, geographies, and asset classes.

It's classed within classes of asset classes. And so there's undoubtedly going to be some pain in some areas. I'm still waiting for the sign that lease rates in industrial are slowing down, and it still needs to arrive. Yeah. 

Levi Benkert: So we'll see. We could certainly handle it. We underwrote for it, but we're not seeing it.

It's just not happening yet. 

Chris Powers: We have our first deal under a contract of the year, and we're at, we're at six and a quarter fixed for three years, and then treasury plus two 50 for the remaining two years. We did a deal in January that we had put under contract law before that interest rate was in the sevens.

Yeah. And so the thought there is it worked in the sevens and. It works in the sevens, but we would get an excellent lift if it did go if interest rates went back down at some point. Higher rates for longer are probably better for the industry. It makes the people who will be in this and operate and be professionals exist and those who just jumped in.

Because even when you jumped in like 2020-2021 when we got in like 16, people were doing it, but nothing. Over the last seven years, many people have jumped into the market, pivoting out of other asset classes. Indeed, I remember the first deal we took to market; we were selling it; this was way pre-Covid, with probably 40 people in the data room, and then in the heat of Covid when the market was going nuts there, we had some data rooms with over 200 buyers in there.

Yeah, certainly back down. But because, in general, there's equity and there's debt for good deals, but in general, it's still slower right now. How long is that going to last? 

Levi Benkert: Yeah. It's incredible what compounding the year's effect of building relationships with investors does.

I've talked to many peers saying they cannot raise equity, and we have not seen that. Whatsoever. We did a raise two weeks ago, and it was only sent to existing investors within 18 hours. Like, okay, we're expecting to have to send it out. We've got this extensive list of people who have asked for our deals, and we have yet to send in anything to them because it keeps getting full by our existing investors.

Chris Powers: Is your goal to keep growing through one-off syndications through high net worth, or will you take on institutional capital?

Levi Benkert: No institutional capital. I always am tempted; I've done it before and did it on the stuff I was doing in Africa. I'm not too fond of those negotiations, and I wouldn't say I like being owned by some organization that's at the whim of often completely disconnected forces that are telling them what to do that is then telling me what to do. And so I'm accepting the slower growth and saying that we want to hit it out of the park, meaning, Solid returns on every deal we do, but also excellent communication.

Do everything possible to be transparent, honest, and upfront even if something goes wrong. Be upfront about it; I'm good with it if that's a throttle on our growth. 

Chris Powers: Yeah, it's what you said at the beginning. Bad if you're communicating with people who can accept bad news.

People don't like surprises. 

Levi Benkert: I always joke with my team that we will send out someday. I hope I never have to, but we might have to email investors that say we underestimated the chance of a hurricane or a tornado in the area, and the building has been flattened, and that's on us.

We're just going to own it. Because we should see our job to our investors is to see every risk that could potentially happen and to plan for it.

Chris Powers: How do you structure the team? You guys have asset management, acquisitions, and accounting. What do you think about the organizational structure? 

Levi Benkert: We've been going through the EOS process, which has been fun. That's humbling, and you realize how much structure you need. Asset management is just a fantastic team right now, and that's taken some time to build asset management guy acquisitions; it's two people acquisitions; sorry, it's four, but one guy mainly runs it, and another in-house does transactions coordinating.

And then two, we've got one in each market, Houston and San Antonio, that is on our payroll but also gets commissions that are just finding deals for us. And then an accounting team, and yeah, it runs well. And then a couple of support staff, and I've got a chief of staff that was a Michael Gurley suggestion.

Chris Powers: Yeah. How's that been working out? 

Levi Benkert: That's been good, promoted from within on that. Her name is Morgan, and she's just fantastic. She has done an outstanding job.

Chris Powers: What does the chief of staff do for you?

Levi Benkert: In everything with me. So she's in my email and part of everything that happens.

And when we leave a meeting, we've both been in, and she does everything that will happen. It's weird because it's almost halfway between a chief operating officer and an almost like executive assistant. Because there's so much, and we have some admin, she doesn't get stuck in the admin work. 

There's so much that needs to happen that she makes sure it happens and just like got her finger on the team's pulse, which enables me to be more strategic. Is this the right deal? Is this the right time for raising capital? What's the messaging? What's our brand look like?

Chris Powers: Yeah. It is the best way to train for that role just through osmosis, like being with you constantly. 

Levi Benkert: Yeah. She started in investor relations. And still, that function goes under her, but she's got a team now under her, but just being right there, it's also just the right personality, and it's a fierce fire. 

Chris Powers: I've been fascinated by that role and never had one. I have a fantastic executive assistant who would be considered chief of staff at another company. I have yet to think about it, but it is a more widespread role. I had Gurley on here.

We talked a lot about the chief of staff role. And so it's cool that you got one. 

Levi Benkert: Michael's on our, I don't know if you'd call it a board because we don't have an official board, but he's one of the top advisors on our team and has some equity and deals as we do those.

And it's just been fantastic. Michael is the best. The help he brings to the table, and he and I have. We just had so much fun working together. 

Chris Powers: He's great. We could finish it on how we met through Twitter. How did you get on Twitter?

Were you always on it?

Levi Benkert: We don't have to go back far in the conversation. Michael Gurley, I was buying a building from his fireworks company. Doing due diligence on him because it was a sale-leaseback didn't complete the transaction, so I never bought it.

During due diligence, I asked for a call with the owner, got on the phone with him, and thought, I have no idea who I will get on the phone with. I got on the phone with him and said, this guy is fascinating. Who are you, and where'd you come from? And we ended up talking for like 45 minutes.

Fascinating conversation. And at the end, Michael was like, get on Twitter. I had some accounts I never even logged into, which was towards the end of 2021. So it has been a short time. Found him, found you quickly, and then just went from there, and it's been fun.

Chris Powers: How's it impacted you and your business? 

Levi Benkert: Yeah, it's been tremendous, and I added it up the other day. So this is money raised, deals bought through, sourced through Twitter, or just the volume of business I've done through relationships that wouldn't be there if I didn't have Twitter. And it's 88.

It's more than that now because we did another one. So we do the math. In my head, it's 93 million dollars. 

Chris Powers: How for raised equity?

Levi Benkert: Raised equity deals that we've bought through Twitter, sourced through Twitter, are sold through Twitter.

Chris Powers: Unbelievable. Yeah, and it's a powerful tool.

Levi Benkert: I'm paying the $8.

Chris Powers: Yeah, I'm paying the $8. Suppose you stay out at the dark corners of Twitter. Yes. And know how to use it; it can be super powerful. 

Levi Benkert: It does feel like a bit of its soul is gone, and I'm hoping it can come back around, but we'll see. 

Chris Powers: Yeah. I think Elon's; I never bet against him.

Levi Benkert: Yeah. But he overpaid, so he's got to do some things to make it work. 

Chris Powers: I saw the deck on his money raising like the future of it, and he's already alluded to a lot of this, like potentially partnering with the finance company and allowing banking. He's got a much bigger vision for Twitter that's way bigger than the way we currently use it.

Levi Benkert: Several Chinese companies have done that successfully become the super app. 

Chris Powers: He has had that nifty app in his mind since the PayPal days.

And he just announced that he bought X.com or X.com.

Levi Benkert: He's had it since PayPal. He's in that domain. 

Chris Powers: So, for something like this. What's most interesting is their head counts down to 70 or 80%, which still works.

Levi Benkert: I got locked out yesterday and could not get back into my account.

Chris Powers: Oh, I did too. For like an hour? 

Levi Benkert: Yeah. 

Chris Powers: I called my IT guy Shane and said Shane, I don't know because it was still working on my phone for a bit. But I couldn't get on Google Chrome. Of course, like all things, as soon as he came to help me, it worked. Just his presence was like magic.

Levi Benkert: Yep. 

Chris Powers: All right, Levi, thank you. 

Levi Benkert: Thank you very much; so much fun.

Chris Powers: This was great. Appreciate it. 

Levi Benkert: Yeah.