Long Game with Jim Diamond

Welcome.

This is the Insider's Edge to real estate Investing with James Nelson, the principal and head of Avison Young's US Investment Sales Group and his co host Kim Troller from his investment sales team. In this program you'll learn game changing strategies to outperform the market. James will teach you how to source, execute and capitalize on the best real estate opportunities in New York and around the world. Now here are your hosts.

Welcome to episode number 239 of the Insider's Edge to Real Estate Investing. This is your co host James Nelson.

And I'm Kim Troller, also your co host.

And today we have with us my friend Jim Dimond. Jim is the CEO of Diamond Properties and we're going to be talking all about laying the foundation today for long term real estate investment. Jim founded Diamond Properties in 1995 and has since acquired more than 125 properties including office, warehouse, retail, residential and land. It's affecting affiliate Diamond Hospitality Group also owns and operates businesses under Safe Haven, Self Storage, Velocity, Flexible Workspace, Spins, Bowl District, Social and other brands.

You'll hear about shifting into industrial real estate, buying below replacement costs and holding assets for decades rather than chasing short term exits. Jim explains how long term buy and hold structures align investor incentives and how operating businesses like Self storage and solar installations fit into a broader model to generate cash flow and returns. So Jim founded Diamond Properties with his brother and they both have a really unique background living in Asia, working in electronics and manufacturing. So they both view real estate, each individual asset, as its own operating company. Which was very interesting.

Yeah.

When I came to know Jim and whether it was probably 15, 20 years ago and I sold a multifamily property they had in New York and I had no idea the breadth of what else they had done. And it's rare that we have on the show Kim, an investor who has done so many different asset classes. I mean it seems like Jim has Dimon has literally invested in pretty much every single type of asset and then to have all these operating businesses on top. So not only Self Storage, the flexible workspace, a bowling alley, I mean it's a RV company. Yeah, rv. Yeah. It's really wild what they are able to accomplish under one roof. So you know, and he really accredits that to the entrepreneurial spirit. So I know our audience is going.

To get a lot out of this.

Episode today as always you can go to james nelson.com. that's where you can find the show notes for this. You can find out how to connect with Jim A lot of other helpful information. By now I'm sure we've rolled out our new educational platform that I'm doing in conjunction with Adventures in Commercial Real Estate. There's a James Nelson AI that will help guide you.

I've tried it out. It's wild.

Amazing what can be done now. So we're going to have a brief word from our sponsor and we're going to get right into that interview with Jim Diamond.

Avis and Young's United States Investment Sales platform executes on multi family office retail development and specialty asset transactions across top US Markets. As experienced leaders in the industry, our integrated national team is here to help you make informed investment decisions. Whether advising on your current holdings or identifying new opportunities nationwide. Our one unified platform is built on unparalleled collaboration and connectivity across 120 full service offices around the world, giving clients direct access to the deepest pools of capital. We put our clients first, delivering tailor made strategies to achieve superior results.

Welcome everyone. Thrilled to have with us today Jim Dimon who is CEO and co founder of Dimon Properties. Jim, welcome. Thanks so much for coming on the show with us today.

Thank you. Thanks for having me.

Good. So Jim, we were trying to, I think we met dating back to probably 1999, 2000, because this was very early on, at least in my Massey nacl career when you made a little bit of a foray into New York. And so we want to get to that. But maybe for our audience, maybe you could just give them a little background on your story, maybe how you got into the business. And then Diamond Properties, then your other business, the operating business that we were speaking about earlier.

Sure. So I got into real estate a little bit sideways in terms of my brother and I had an electronics manufacturing and importing company that we'd started after college. He spent some time in Japan, I spent time in China. And we'd started this company, needed space for ourselves, bought a small building in the Marinec, New York, 5,000 over 5,000 office over warehouse. Grew out of that in a couple of years as the company grew and then ended up looking around and it was a tough time in commercial real estate. So we're able to get 140,000 square foot empty office building in Valhalla, New York that had been a former IBM property foreclosure. So we bought it really inexpensively knowing absolutely nothing about real estate, but just thinking we, we could figure it out, built up a team, started doing our own construction from day one. Knew a construction guy, hired him and just started demoing space and using our own occupancy as an anchor to give life back to the building, managed to fill it up in about 18 months to 100% and take some cash out and then reinvest in the next one and then the next one. And realize that real estate's a lot better business than electronics manufacturing. So gradually transition most of our focus to real estate.

Wow, this is quite the entree to real estate. We have a lot of questions for you, but I guess for starters, when you decided to purchase the building for your business, because oftentimes you have a business, it's expanding. You know, a lot of companies would lease. So what gave you the idea to buy it? And then, you know, I'm very interested to hear about this, this vacant IBM building that you thought that you could all of a sudden transform. I mean, I would think that that would be kind of taking you away from your, your core business. Right.

So I don't remember exactly the thinking at the time, but it may have been, I think my dad had originally said to me somewhere, my dad was an entrepreneur. So I grew up in a very entre, entrepreneurial family. He's, he had started a number of businesses and I, I, I think I remember him saying at some point that with a lot of companies, you people build up a company, they own some real estate and they turn around and someday the real estate is actually the most valuable part of the company because of over 10, 20, 30 years, how much it's appreciated in value. So I think that stuck with me. And then when we had an opportunity, it seemed to make sense to, to, to, to jump in and buy something ourselves. We didn't realize, of course, that it was going to become a whole business. We just thought we were built buying one building for ourselves.

I always find it so fascinating when people start businesses with their siblings. Did you and your brother, was this always a goal of yours? And did you always kind of work well together? Like how, how have you guys kind of evolved and like what led you to be doing this together?

I don't think it was always a goal, but we've had an amazing partnership for, and it's been 35 years now. I'd say for the first year maybe when we were both in the electronics doing exactly the same thing, there'd be tension, fighting over silly decisions or whatever. But we found an amazing way to operate, especially now where really I spend all my time on the real estate time side, he spends his time on the operating company side. And there's overlap. We have two sides of the office. And we spend speak to each other every day, always bouncing things around. But I think the. A really a great and important key to working well with family, I think is having your own areas of responsibility. So I take everything he says really meaningful as meaningful input. But he knows at the end of the day, like I make the final decision on the real estate side, he makes the final decision on the operating company side. And that that's just I think a great way to maintain a strong relationship for a really long time. So I like, I don't think we've had a. We fought over anything in probably 25 to 30 years now.

Wow, that is rare, especially among siblings.

Yeah, definitely not for my three sons. That's if we go a week, that's, that's a good span of time. So what's amazing about this first vacant building that you tackled for investment, you said, well, you know, you obviously saw an opportunity. It was a cheap buy. But then you kind of figured out. But then you said, well, and we leased it up and we moved. I mean you would think that at the time there'd be professional real estate investors who you're competing with. Again, you're trying to figure this out as you go along. Did you just kind of get lucky or how do you. How were you able to lease up this building without knowing much at all about the real estate business and having those connections and relationships?

Well, it was. So I think a lot of. If we'd known more, we wouldn't have done it. It was one of those types of things where a lot of experienced people passed on it. Anyone who knew the business. It was a class B building. 1995, the. The real estate market was terrible then. People were coming out of, out of, out of one of the busts the building had. It was owned by a pension fund. It had, had that had taken it back. It had pipe breaks throughout it. So there were floods everywhere. And it was just a disaster of a situation that nobody wanted to touch.

But what gave you conviction then about it besides the fact that it was cheap?

We just thought we could do it. It was that, that, that business mindset.

Of yeah, like, but the location, the building itself, you just saw, hey, this is an area or there's going to be demand.

Or when we wanted to set up our first, our factory in China, Bill and I flew to China. We bought this crummy factory, shut it down, moved it to a different, better building, knowing absolutely nothing about how to do that. But we just went and did it.

Let alone in China. What does that entail as far as just showing up and buying property in China? How does that.

Well, we didn't buy the property. We bought, we bought the business. And at the time you weren't allowed to buy property in China. Everything was owned by government entities. So we just sort of had the attitude that that could do it, we could figure it out. We started this other company and, and we just, you know, we, we, we, we figured we could make it happen. So we, we had, we had, there was somebody else in our office, Mark Blanford, who had. We had been trying to start yet another company. We decided it wasn't going to be a good path. Mark was already with us and we said, hey, how, instead of that, why don't, why don't you jump in and start working on this? And Mark became our, our, our leasing person and still with us today, 30, 30 years later, running all the leasing for, for the portfolio. So it was just a able, the ability to pull things together that got us to be able to do it. The contractor who built that first 10,000 square foot office for us ended up becoming our head of construction. And we, from the very beginning, we were totally vertically oriented where we did our property management, leasing and accounting from, from day one.

That is amazing. So you and your brother both have this unique background in technology overseas. How has that shaped your approach to real estate now in the way that you're, you're looking at these buildings?

I think we've continued to always look at each acquisition as an individual small business. And really what we're, we're really value buyers today. We try to buy below replacement costs, try to find a gap between what we think the building should be worth versus what we can buy it for today. And it's a little bit, I haven't been in the private equity business but, but I imagine it's a little bit like that in terms of identifying that gap between where the business should be and where it can be and figuring out how you're going to get it there. And in a lot of, a lot of times, a lot of cases, that's not that difficult. It's just basic execution. Putting capex into the building, figuring out what you can do to reposition it, aggressively leasing it. We're very easy organization to work with in terms of getting deals done with, with tenants. Our whole leasing process or lease process, everything, construction. So I think that that small business mindset of looking at it as, hey, this, this building is an individual business and how do we, X to Y and Then trying to position ourselves with those acquisitions where sometimes we have a basic business plan that we think will be a single or double for us. And then a lot of. We're trying to position ourselves where there can be a lot more upside on the horizon where something could turn into a home run if things go the way you think they might. Right.

Well, that being said, you own over 100 assets across the country. Do you mind giving a breakdown of your current portfolio by location and asset type?

Sure. So we, we started in office originally, very quickly jumped into flex. Over the years, we've sort of done a little bit of, of almost everything retail, couple of multi family, small, multifamily things, self storage, warehousing. We own RV parks, family entertainment centers. So we, we've, we've done a lot of different, invested in a lot of different categories. 2014, we were really pivoting, decided, trying. I was trying to decide do we focus on. We were selling a couple of assets, retail and office, and trying to decide where to focus and really evaluated multifamily and industrial. Decided at that time that industrial was where we wanted to be. So since then, almost everything we bought has been industrial. With that, we've expanded our geographic footprint a lot. We're now in 13 states, Midwest and Southeast. Probably about square footage wise. Probably about 80, 80, 80% of the portfolio is in, is in industrial, value wise, because of the values of retail office ratios. Not quite, quite that high. But, but we're, we're primarily industrial at this point. We own a lot in Ohio, a lot in Tennessee and then a lot of other markets like Indianapolis, Atlanta, Jacksonville, St. Louis, et cetera.

And how do you figure out where you want to be from a geography standpoint? So you're based here in New York. You have pretty substantial holdings here in the New York metro area. Maybe that's more the legacy portfolio with the office, the retail. You're making a big push, like you said, into the Midwest, Southeast for industrial. But what is it about those states? Is it really about the deal itself or are you thinking some investors are saying, well, taxes are too high in New York, I'm going to go invest in Florida. Are you thinking about what's actually happening in those states or you're just actually looking for wherever the deal is and you'll be opportunistic as far as from where you want to look from a geography standpoint?

No, we're very, we're, we're careful about the geographies. I mean, I think where you're investing is, is probably the most important thing. So we're look, we've been looking for strong logistics markets. It's it like markets like Memphis have a tremendous amount of rail and air infrastructure. We like relatively dense markets these days 2 to 300 million square feet is typical of the markets that we're, we're invested in. We're usually investing in relatively dense parts of the market. Like I don't like buying warehouses where we're just surrounded by infinite amounts of, of farmland. So we're, we're hoping that when there's low vacancies we'll see rental rate increases. And by avoiding markets where there's just tremendous potential for new construction in the sub markets where we're located, I think we're able to take advantage of that to a large extent.

And these are typically, these are all value add in the sense that if you're, you're looking, you're a basis buyer. So these are not, I mean well maybe, maybe there is some new construction that's distressed but, but for the most part these are kind of class B. And is then the business plan just to kind of improve on that? What's, what's the strategy as far as the type of asset that you're looking for?

Exactly. We're, we're always, we're looking for below replacement costs so it's typically going to be class B buildings but we're careful not to buy anything that we think is functionally obsolete. So we're typically looking at like 20 plus ceilings. 2020 foot plus ceiling heights, good truck courts, loading things that, that you know, I don't, I don't like acquiring buildings where you're just always going to be fundamentally challenged by the, the infrastructure that you can't change. So, so good assets ideally below market rents we'll buy single tenant, multi tenant vacant occupied. So we're very flexible in terms of what we try to buy. One of the things that's been a good thing for us over the past few years is where everybody was chasing buildings with Short Waltz we were able to look for some longer walts. Even though like below market rents that you may not be able to realize for five or seven years. We tend to be, we're really buy and hold investors. Like over 30 years we've bought something like 135, five properties. We still own about 105 of them. So we really are thinking in terms of the long run. So even, even if it's going to be a few years until we're able to see rental rate growth, we're willing to be patient with, with an asset.

Yeah, it's, it's interesting. The investors who are more long term are typically able to get in at a better basis because they have patient capital and they can wait for the leases to expire to bump up to market. Whereas like someone who's looking for you know, like the near term, like three to five years, it's, there's a lot more competition there. So that, that makes a lot of sense. And so who are your main investors? Are they more high net worth investors who are also thinking long term about generational wealth? Like who's your main investor base and how do you kind of maintain those relationships?

So when we started it was internal, our own equity. So for, for a number of years we were just investing on our, our own behalf, which we were able to do again because we started really small with one and kind of kept rolling the capital from one deal into the next as we were able to add a lot of value and then take some of that value out with refinancing which kind of grew into friends and family. And then about 10 years ago we got more intentional about building a syndication platform. So now we've got about 130 people who will co invest with us. Hi net worth individuals. On a deal by deal basis. We have done one, we've partnered with institutional capital once on a very successful transaction. But with our buy and hold long term investment strategy, we're better off with, it's a better fit with individual investors who are comfortable with a long term hold than an institution. The institutional deal we did, we were able to structure it really well where it a 50, 50 partnership and we were able to buy them out after four years. So that it was, it was a good win win structure for both of us.

So a lot of our listeners, whether they're aspiring investors or they're, they're you know, looking to start raising capital, I think a lot of those sponsors are typically doing the three to five year deals because they get the promote and then really they're getting the bulk of that on the sell or the recapitalization. So not that you have to go into all the specifics of the economics, but if, if the holding period could be forever. So what does that look like for your investors? Are you just, are you still giving them a preferential return? And after you hit that then there's you know, kind of a waterfall on how you're sharing the cash flow. I assume you, you have fees if you're doing all this in house. But how do you kind of align your interests with your investors and arrange for that kind of forever hold period?

So yeah, we have a standard typical structure, same as everybody, where there's a preferred return and we don't get a promote until our investors get accumulative preferred return and 100% of their capital back. So our interests are very aligned with our investors. We're really not at all driven by fees. We need some fees in order to support the business and compensate the team. But we're really more driven by long term equity growth and we're big investors in every one of our acquisitions. So our interests are fully aligned. Typically what we've been able to do is return 100% of capital to our investors within a few years. Often it obviously depends upon the deal and where we are in the cycle. But on some of our deals within four years and certainly within 10 years.

And that's through typically a refi. Because if you're an not selling.

Yeah, exactly. So a lot of our, on a lot of our transactions over, over 10 years say we're able to return about a 1.8x the actual cash distributions to people and then have residual equity in a Property of maybe 1-1-2 x what the original investment was. So it's a great structure where everybody's getting 100% of capital back plus return and still ending up with long term ownership of the asset. Which I think is what a lot of individual investors are looking for. I mean, they're looking for a safe place to put their money, get a long term income stream. A lot of our investors invest in a lot of our deals and a lot of other sponsor deals. So it's really about them putting all these transactions together and having good long term cash flow for themselves, which is what we're delivering.

Right. Not to mention the tax benefits as well. And I mean the structure you just described is great because it means that your incentives are aligned with your investors and you're incentivized to have the deal perform because they have the preferred return and they're entitled to, like you said, 100% of the capital first. So that's a really great selling point on the tax front. Are you guys active in the 1031 space? Space? Like are your investors kind of looking for 1031 exchange opportunities? Like how do you structure your deals to, to enable a 1031 kind of in the future for yourselves and for your investors?

So I've done a, with properties that we own 100 of, I've done or 50%. We've done a lot of 1031s over the years. I really hate selling property and not doing a 1031. I think it's, I've, it's only been maybe once in my career where I haven't been able to, to pull off at 10:31. You're just, it's so advantageous. And that's really been a lot of my thinking over the years in terms of refinancing versus selling. Obviously if you can do a 1031, this doesn't necessarily apply, but especially when you're not borrowing 75% anymore. But when you were, it made a lot more sense to refinance at 70 or 75% than to sell 100% and pay taxes on the gain. When we were getting such large value increases because of the value we were, you know, we were doubling or tripling the value of some of these properties. So you're going to have a huge tax hit. And, and, and just realizing part of that gain through a tax free refinancing make makes so much more sense. So we, we don't sell a lot of, a lot of properties but, but certainly when, whenever we do, we try to, to make it a 1031 exchange.

That makes a lot of sense.

So Jim, I'm curious what your team looks like today and especially on the acquisitions front, because I'd love to get more into, you know, how you find these opportunities, especially when you're going to new geographies. So if you're making this push into the Midwest, you know, assuming you don't have broker relationships there, you know, how are you, how's your team finding these opportunities? How are you vetting them? You know, how do you know as kind of being the new investor in the market that, you know, the local players haven't already, you know, picked over it. So I know there's a lot of questions there, but just kind of the, you know, the, your team that you have and how you go about finding and vetting these opportunities.

So I think we, we've got a, we've got a great small acquisitions team. Overall, the company's about 80 people right now. The real estate side of the company, the operating side's a lot bigger because of the types of businesses we're in, in terms of, of the number of people, but the real estate side is about 80, 80 people. The deals we find are really a mix of a lot of on market stuff and some off market stuff that we see out there. I think a lot of the brokers in the industrial space. Know who we are. We've been around long enough. We have an amazingly good reputation amongst the brokerage community, I think both on the leasing and the acquisition side because we're, we're just easy people to work with. We have 100% success rate in terms of. We always close deals and we never retrade deals. Whether we're buying or selling. We just, yeah, network. We're, we're, we're, we're intense about that.

Even if you find something during the diligence process, I mean if it's a material issue, I would imagine there would be adjustments for something like that, but not just.

Yeah, there's over. There's only been like one or two times in our history where somebody withheld something that material like an environmental issue that, that should have been disclosed which, which became an issue. But in other words, we, based on property condition or something with the leases, we're not looking for reasons to go back and retrade a deal or what happens in the financial markets with interest rates or anything like that. We're 100% in. And, and I, I think so when, when, when sales brokers recommend to their clients that, that, that we're the buyer to go with, they, they can have basically 100% confidence that we're going to get the deal done. We've never run into financing problems or anything like that. So we're just, I think it's, it's, I think it's just a question of, of being out there seeing good deals. I was in Cleveland last week for a few days looking at a couple of new acquisitions that we're interested in and some of our, several of our, about five or six of our existing properties that I was touring around.

So now do you have any boots on the ground in Cleveland or is everything run out of New York?

We do have.

So we're, as you said, you do all your management as well. So do you have on site people? How do you.

So most of the people on our payroll are located in New York have a number of people on the property management side, especially property managers who travel around the country. We, we, we usually have a, a leasing person in each market that we're working with. Third party if we're not there. And we often have a local property management company as well who's helping to like we may still be doing the accounting and much of the property management for the property, but we need boots on the ground. So we'll often have somebody in Columbus or Richmond or wherever who's who's who first line of response if there's an issue with the property.

So from a building operations standpoint, I saw that you have solar roof installations that I think was seven of your properties. I'm curious why like where the incentive came from to include solar. And I'm sure your tech background has something to do with it and just viewing the, the asset as an operating business and how to reduce costs and all of those things. But were there any incentive programs that were available at the time that made the project project pencil at the local level or the national level? And then also, I know this is a long winded question, but then also are there other renewable energy outlets that you're looking at exploring like EV charging, battery storage, things like that? Because I know like New York has a really great program for EV chargers. So I'm curious like what your sort of outlook is on, on the renewable energy side.

So we were, we were always very environmentally focused and it, it, for me it really made sense. It was one of those, you know, I love win win things. It made sense. It was great for the environment, great for, great for the world and also made sense makes sense for, for real estate. If you can reduce whatever it is you're using that that's great. And, and so yeah, we sort of looked at solar panels as just another investment, another little mini business. We, and that's the way we, we structured it as each one of these installations was a little solar company business on that building. And we installed all of those within a few years. They've been up for a number of years now. I'd say between seven and 10 years. The incentives were good at the time. They were all in New York and Connecticut. Made sense with our switch to. With big warehouse buildings you have a lot of roof space. So versus office buildings, it's just going to be a lot less efficient. So it was a major investment and it's, it's been a good investment over time. It creates a little bit of issues the longer you get into the hold cycle with those creates a little bit of issue with roof repairs. Even if you start with relatively new roofs, which you need to do when you put those on. As everybody knows, roof leaks become inevitable in every building. And when you're covered with solar panels, it can become a challenge for our, our team to find them.

Right. And I'm sure roof, roof age is something that you consider before you install the solar panels.

Yeah, we only put the panels on roofs that were relatively new, you know, less, less than 10 years old. the time, since these panels have a 25 year lifespan.

And are you only using the energy produced like within the buildings themselves or are you selling it back to the grid and doing like a community solar kind of thing?

There are. The energy is all used within our own building buildings.

So let's talk a little bit about the hospitality group. So in addition to, you know, the assets that you own and operate, you also run many of the businesses. So ranging from self storage, flexible workspace and then, and then spins bowling.

So it's just.

What's so amazing Jim, about what you're doing here is you've got many different business lines. I mean clearly that entrepreneurial spirit. But how, how did you make the decision to go into that operations side as well as opposed to just having a tenant and focusing on the real estate?

It was, it was always just opportunistic each step of the way. So we, we acquired a building in Elmsford that had a self storage business in it, occupying about two thirds of the building. And, and then as we learned the business we realized, wow, this self storage is an amazing business. And started really. We haven't actually bought any full, fully stabilized or bought any other self storage businesses, but what we've done is we've now built a handful of them in within buildings that, that we, that we own. So we've, we realized great business. So let's just keep growing it and.

It makes more sense for you to actually operate it as opposed to getting a third party. Because if I'm not mistaken, you know, the storage business is very similar to hotels where you instead of having a flag or a brand, you have an operator like a public storage where you just pay them a management fee and they're basically, you know, filling up your storage. So is, you know, is your thought that you can do better than, you know, a third party manager, that that's all that they do. Is it a, a cost savings? I mean I don't know what these management fees run when you bring in one of these third parties, but what was the decision to say hey, you know, we're willing to spend the time because we can either get better efficiencies or cost savings?

Well, I think when we started, now these days I think third party management has become quite large. But when we started, which was probably 13, 14 years ago in self storage, it was a lot less prevalent. So it was much more typical for people to self manage. This property had been our original self storage acquisition had been self managed. So it wasn't that we took it from third party management and brought it in house. We just assumed the business that was already there. We had a great team of people there and we just focused on improving the business. Once we had the structure in place, it was easy to drop the next one, then the next one, then next one and kind of keep growing it that way. So we've never actually it's one of. It's probably falls in that category. If it's not broken, don't fix it. It works well and we're doing well. We're typically, you know, 95% least or whatever. So we're happy with it.

You just figured out obviously how to advertise, how to fill the space. I mean as opposed to manoeu on the hotel front. Again you kind of tapped into the central booking agency where you get demand but I guess it's a more of a localized business. Is that how you would compete against the other storage operators?

It is, yeah. There's no we do there. There's a few services where you, where you can advertise through but, but not like hotels where it's hotels.com or whatever. But it's really about. Self storage is an interesting business in that you don't really create demand by advertising. It's more that when the demand is there you want to be at top of somebody's mind. So it's really have they driven by you a million times and if they go to Google and search are you going to pop up or you know any, any other way that people are going to find self storage? So that's, that's, that's really the key is just being there. When people decide they need it, something happens and there's a transition point that they now need self storage. They're buying a house, selling a house, getting married, getting divorced, moving how many.

Of your, your tenants stay long term. I'm always curious if is a storage business, do you even know kind of of what the average length occupancy is or it just totally depends.

I think it's people just keep their storage space forever and I think average would be deceiving because you, I think you have some people who use it short term, they're moving, they need it for a year, renovating a house, something like that and other people who are there for 10, 20 years and then some commercial users who really use it as a base of operations. So you know we have, it's sort of you'll have constant monthly churn but it's, it's at a small enough level where basically the number of people moving out, you're able to replace the number of people moving in. And it's, it's a great business because of the low capex. You know, someone, one, one customer moves out, another customer moves in, you, you have no, no capex, you need to sweep the floor and that, that's about it.

So it's interesting that you're involved in hospitality as well, because I feel like hotels more so than other assets are really like operating businesses from a valuation standpoint. Like instead of looking at noi, you're looking at ebitda. It's really the same thing, but it's like you're, you're, it looks like a company when, when, when valuing it. So are there any other new property types or emerging kind of sectors that you're particularly bullish on or looking at exploring? They're very diversified. You've got a lot of different hats going on.

Nothing new that we're looking at exploring, but we're like a couple of other areas that we're in. We own five large RV parks in Pennsylvania, New Jersey, Ohio and New York. So that, that's been a good category for us.

You operate those as well. So that, that business is obviously. So you have people show up, they pull up onto the park. But do you have any F and B that you operate out of that.

As well, or a little bit of F and B? Not a tremendous amount. Our parks are, and this falls under the Diamond Hospitality Group side of the business, which is under my brother. But our parks are large. Like we have one In Ohio that's 375 acres. We're bringing it up to a thousand RV sites. Our customers are, are typically seasonal customers, meaning they spend, we're open six months a year. They spend the entire season there. They, they, they keep their, they have their site for six months. They typically leave their RV there year round, but use it for six months and it kind of becomes like a second home over the summer season. People use on weekends. So they become. Our properties could have 3,000 people on them on a, on a Friday, Saturday, Sunday. They become a, like small, small towns. So it's a, it's a really interesting, really interesting business we'd like to, I think it's a great business we'd like to grow. But since we're looking, we look. All of ours were highly distressed when we bought them. They had all gone through foreclosures at one point. We didn't, we didn't always get them at the foreclosure. We got A couple from, from the first buyer after the foreclosure. But we, we put, put tremendous capital in all of them to take them from failing businesses to 100% occupied businesses. And so just finding, finding large RV parks that have that profile of being damaged, where we can go in and fix them is not so easy.

From a demographic standpoint, what markets are I guess good for RV investment? I don't know anything about that space. Where in the country are you kind of focused on focused or should you be focused for RV investing?

Well, there's, there, it really depends what type of park you're trying to buy because you could buy there. There's, there's, there's parks everywhere. And the funny thing is the reason we got into this business is because when my daughters were like six and eight, we started taking family vacations in, in, in an rv. There was somebody in our town who was, built an RV rental business for Airstreams and we did an air Airstream trip to national parks in Montana and Wyoming and thought this is the most amazing thing. So for a number of years we started for two to four weeks in the summer bringing my kids to a couple of national parks, hiking and camping. So there's a whole side of the business which is positioning parks in high transit areas, long highways, or at destination areas like lake national parks where people are going to be short stay for a couple of days and there you just want to pick obviously areas that are logical. But destination parks like ours, they can be really anywhere where you've got one to two hour population that's one to two hours away, that's significant.

So Jim, thinking about your legacy office and retail portfolio, just the type of tenants that you like to attract, I saw one of your buildings, you've got Orange county choppers. Got to be a pretty, you know, cool tenant to work with. I mean is, is it mostly. Do you prefer credit kind of more national tenants? Do you, do you like the mom and pops? How do you think about tenant mix when, when you're looking to keep your office and retail properties full?

So we're, we, we. One of the things we always say is we're like when we're buying buildings is we don't buy based on tenants, we buy based on the building. We like to know because we always assume however good the tenant is, whatever the credit is, they could go dark and we'll always can get the building back. So we, we just, we like to acquire assets where we know that whatever happens, we're, we're going to be able to re tenant it and replace the rent or beat the rent. Which is why we've tended not to be buyers of for example brand new Amazon warehouses where they're paying a premium rent. We, we, we focus more on the class B stuff. We're not that focused on, on whether it's credit or, or, or, or not credit for, for that reason. Obviously if you've got a credit tenant on, on a long term lease, that's great. But we're, we're happy with, very happy with local tenants as, as, as well. And that's, that's a big part of our portfolio. What we've done. You've mentioned Velocity Office. What we did that we don't own many office buildings anymore. We're probably down to about six or so and those are mostly medical, which is a great space to be in. But what we did. The reason I, one of the big reasons I started transition out of office 11 or 12 years ago was because of the capex and just got tired of that process of demolishing and rebuilding the same thing over and over again. Moving the wall over 12 inches and starting again. So what we've done to get creative a number of years ago is we created this Velocity Office brand which is really just the Regis Office flexible space model. And it's become very successful. We've stopped demolishing any offices if we lose a tenant. We've got a normal layout. We're able to just put the Velocity brand on it and start leasing out individual offices. We've now got I think seven locations and they are about 90, 92, 93% full, something like that. Probably a couple hundred individual offices at this point. They're, they're smaller often than, than the big, the big Regis. We're sort of just plugging them into individual spaces but we find, we find it just keeps working. People love our, love the model and I think we do a great job with the build outs with you know, with the finishes, the furniture and the colors and making it a nice, nice environment. Our model has been to keep that really streamlined. In other words, not trying to create a very complicated, expensive product. Not the wework type approach but really just good offices for a good price, totally flexible month to month.

So with this new model are you kind of going forward looking to acquire more office or are you kind of just running with what you currently have?

Just running with what we have. I do think, I mean I think there is an opportunity for people to acquire Office now. I think a good value, good basis add value and I think there's a business model there that makes sense, but it's not. Having done it early in my career, I just really don't want to get back into that heavy capex business of. I much prefer the, the. The industrial space is amazing because you lose a tenant, you're really the only things you have to worry about are parking dock loading docks and parking lots and roof and you know, every once in a while now I think will be LED lighting will be there for a long time. But there were transitions for, from T8s to, to, to T5s to LED and there you, you occasionally have sprinkler system upgrades, things like that. But there's, there's really not that much capex and it's very predictable based on useful life of, of the, of the building components.

Right. Well, now that we're pivoting back to industrial, I saw that you closed back in August on an asset in St. Louis. Could you talk a bit about that project and what made it a compelling opportunity? Like was it the same sort of value add long term below market lease strategy that you were describing before?

Exactly, it was. We bought a couple of buildings in the Earth City submarket, which is a market that we, we own five other buildings in already. So it's our, it's the, the market. We think it's the best market in St. Louis. We really like it. We've done well with the assets we have there and these were just proper properties where we thought the in place rents were a little bit below market, good tenants in place occupied, but just there's and a decent cap rate going in. So it's the type of thing where the baseline is great, you're getting a good return on your investment. And as leases roll over the next few years, we think rental rates will continue to jump up. You know, I'm sort of a believer that there's obviously an industrial. There's been tremendous supply growth. There was incredible rental rate growth post Covid where rents almost doubled in most markets or more. Then there were so much supply as a result of that. Amazingly like more supply built in many of these markets than the total vacancy rate today. Like in other words, a market that's got 8% vacancy, there may have been 13% new supply added. So you would have been 4% or 5% short if they hadn't built all that space. Incredible. But now with the supply pipeline so greatly reduced, I think there's the potential for vacancy rates to drop back down to those 3, 4 or 5% ranges where you Start to see accelerated rental rate growth again. One of the reasons I really liked industrial when we got into it versus multifamily there were a couple reasons. One was management intensity, another was capex. One of them was I always felt that multifamily the limiting factor, one of the limiting factors on rental rate growth would be, would just be affordability because it's, it's, it's individuals paying the rent. And so your rents are at a certain, to a certain extent. I mean supply demand is a huge part of the equation but also so a limiting factor depending on where you are with rents is going to be what household income is where industrials are a little bit different. Prologis put out an estimate at one point that only 6% of companies logistics spend is actually on warehouse rent and the balance is the primary categories are transportation costs, trucking, fuel and labor labor and so warehouse rents being such a small part of the logistics spend you really, it's not the affordability that becomes the limiting factor. It's really just this supply demand equation.

Right.

Well that's why the below market lease strategy is, is so effective because you're getting the upside without putting in all the capex.

So Jim, as we're going to wrap things up maybe to bring this conversation full circle circle and usually you know, the show, I would say most of our listeners are already in the real estate space whether they're brokers, they're owners, investors, managers. But, but your story is really interesting. Obviously coming in as a business owner and then continuing to operate and open up all these other businesses. So you know, kind of why an owner of a business again would want to think about buying their real estate as well. Because if you think about a lot of these, maybe you see it more in the, you know, QSR fast food space. I mean most operators would say I want to stay asset light because I have more money to then deploy for my business and I can grow my business faster. Whereas clearly you're making long term investments in real estate that are more capital intensive. So again why someone would want to make that choice of saying hey I want to start owning my real estate, controlling that even if that takes away potentially maybe some of the capital I would have to grow my business. I think weighing kind of, you know, how you could be successful like you have it at growing both.

Well I think both, both paths could work. There's, there's not one right answer. If, if, if you can get a better return reinvesting your capital in your business rather than and hard assets like real estate, that there's nothing wrong with that, maybe it makes that additional capital in your business is going to make a huge difference. But as, as everybody knows in real estate, the, the a big risk is just vacancy. And if you know that you're a permanent, you can be a permanent tenant to your building, you've, you've eliminated the business risk there entirely and you with vacancy comes capex rollover costs, all of that. And when you know you can occupy 100% of something, you've pretty much eliminated all the risk. As long as you're investing in a good market, an area that's not declining, you know you're, you still have to buy a good asset in a good location but as long as you're making a smart decision there and assets like real estate tend to go up over time like with inflation, like a lot of other assets, hard assets. So if you buy something and then you're looking out 10, 20, 30 years, the odds are it's going to double in value over some period of time in your lifetime. And so it's a pretty safe place.

To invest and definitely a trend that we are seeing more of. In fact, we tracked all the office sales that have happened here in New York since the pandemic and a quarter of them been bought by end users companies which is great because well, clearly they see an opportunity in the market but establishing that presence and that's happening across the country. So Jim, this has been an awesome discussion. We really, I mean, wow, talking about a diverse experience here. I'm trying to think out of our, you know, close to 250 guests. I think with the different businesses you're involved with. I don't know if we've had a guest that has been involved in so many different things. This is something certainly for everyone here. So, so we really appreciate you taking the time today.

Terrific. Thank you.

Thank you both Jim and thank our audience as always for joining. You can go to james nelson.com this website's not about me. We built this for you so you can go and get the show notes, find out more about diamond properties, how to connect with Jim as well as a lot of other helpful tools there for you. Instructional videos are going to be coming out with a program maybe by the time you're listening to this we'll have launched with Adventure in commercial Real estate and educational programs. So really here to benefit you to gain that insider's edge to real estate investing. So until next week, thank you again for joining.

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