The Insider's Edge to Real Estate Investing with Tom Barbera

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All right, welcome back everyone. We are thrilled to have with us, uh, once again Chris Gabinski, who is our managing director. He's the co-lead of Avison Young's National Industrial Capital Markets Group, and we've been doing a mini-series on industrial. And thrilled, uh, to have joining us, uh, Tom Barbera, who is founder and CEO of Industrial Outdoor Ventures. Uh, we're gonna be talking about IOS today. Chris, why don't you kick it off again? And we'd love to first hear about how you came to know Tom, what type of business you all have been up to. I think maybe you spent some time on some panels as well.

That's right, that's right. Well, thanks again, James and Kim. It's great to do this, albeit remotely and virtually. You know, Tom and I, I think we started interfacing with IOV probably I don't know, probably 5 or 6 years ago, we sold a, a 2 or 3 property, uh, IOS package here in Charlotte. It was a couple of terminals that we dealt with. I think Joe Voigt was on your team at the time, Tom.

That's right.

And, and we've since, you know, interfaced on a number of different IOS, uh, opportunities. And, you know, it's sort of like one of these things where it's a confluence of where the, the sector sort of starts of ramping up. And, you know, gratefully, we kind of quickly got connected with IOV because they're one of the— you know, I was telling James and Kim, you're kind of the godfather, you know, of, of, of iOS. And so it's great to get aligned with someone with your background and tenure in the business. But, you know, we really have enjoyed, you know, our personal interactions, and hopefully we can bring you a number of more deals in our area. I know you like the Carolinas. So, you know, with that, you know, we'd love to hear kind of like your, you know, how IOV can, you know, got started, kind of got implemented, and then, you know, where it brought you to today.

Yeah, no problem. So why don't I start out with a little bit of my background? And James and Kim, thank you for hosting and for inviting me. So I started my career in brokerage in '93 and spent about 4 years at Grubb& Ellis as an industrial broker here in Chicago where IOV is located, and then was at Trammell Crow for about 10 years, just under 10 years. And in 2000, in the early 2000s, I really spotted an opportunity, I think, in what's now what's now called IOS or industrial outdoor storage. Back then I referred to it, you know, simply as low coverage industrial. And, and I was leasing, I was leasing all of AMB's O'Hare portfolio at the time. And I had institutional leasing assignments. I was a leasing guy through like the I-55 corridor, which is Chicago's, you know, large regional distribution hub and I-80. Uh, so those are the markets I was focused on. And, and what, what I discovered over the course of my brokerage career was we, we would get sign calls from companies that were looking for, you know, a maintenance facility, like a, you know, 10-bay shop with, with a couple of acres of trailer parking, truck terminals, uh, that type of thing. And it, it, we would take sign calls and convert those to tenant rep assignments. And it got to the point those were never available. I mean, they existed in the, in the, in the industrial base and the inventory, but there was never any availability. So it got to the point where you wouldn't even return those signed calls. I mean, because you could never find a solution for the, for the tenant. So as my career progressed and I wanted to transition to the principal side, I called around to a bunch of different investors. And one thing about the commercial real estate business, it's easy to get pigeonholed. So because I was viewed as a broker, nobody wanted to hire me in acquisitions. So I was really unemployable as an acquisition person. And so I really felt like this was an undiscovered, untapped, really unrecognized product category. And if I could make some buys in there, what, what also appealed to me was there was a national tenant base of credit tenants that preferred leasing over, over ownership. So that shouldn't get lost in this. So, uh, with the fact that there was no institutional capital on the investment side seeking these or even like recognizing them, and there was a national tenant base that was signing 5 and 10-year leases with with great balance sheets, I really felt like there was an opportunity. It was low turnover because there's so little vacancy and there is no new product because of the zoning barriers that exist. And the zoning barriers have been in place while iOS is a fairly new product. Everybody talks about the zoning barriers. Nobody's zoned, no villages, cities, or towns have zoned land for outdoor storage. in 30-plus years. So it's been a very restrictive replacement environment and vacancy has been low for, you know, as long as I've been in the business. So I started to buy some of these on my own 'cause they wouldn't come up very frequently. And when they did, I'd jump on them. The first deal I did was a, what was probably the most, one of the most ambitious deals I've done in my career. Because I didn't know any better. We were able to get a 10-acre site in Bolingbrook, which is the heart of the I-55 corridor. It's loaded with all new Class A distribution buildings, and we were able to buy the back parking lot of an old Johnson& Johnson manufacturing facility from Duke, who was a, you know, REIT that's, that's been rolled into Prologis. We bought the parking lot and did a spec 90-door truck terminal on it, which no one specs truck terminals. There was a guy in Chicago who'd successfully spec'd a couple of them. We bought the land, we went and got a construction loan, me and 2 other brokers, and, and, um, put up a spec truck terminal. And we didn't lease it until we were literally hanging the doors. It scared the hell out of us. We had all personally guaranteed the construction loan. But we did a 10-year deal there with, with Yellow Freight or YRC, and we leased it up to a 10-cap. And it was really a 10-cap business. And in some instances it still is. And what I liked about 10-caps, because I wasn't the savviest investor, was the math was very easy. I could really do the math in my head. And, and I like to say, to do the IOS is pretty simple because it's almost entirely single tenant. And if you can add, subtract, multiply, and divide, you can basically run the numbers. So it was, it was perfect for me. And so we, we spec'd this terminal, we leased it as we were finishing it, and, and, uh, the rest is really history. We were able to refinance that and, and get all of our money, about really about 2.5x our equity back, which I was able to roll into, into more deals. And from there I bought about 9 more deals that were not truck terminals, but were more what we would consider today more down the fairway IOS, which were maintenance facilities with low coverage. I bought a, you know, some trailer parking type facilities in submarkets that had strong demand for offsite trailer parking. And I did that between '06 and '08. And then the Great Recession hit. And I, you know, bought these all at the top of that cycle and basically started doing some brokerage again on my own, but had established enough cash flow in these stabilized assets, which were all leased to between 9 and 11 caps, to get through the downturn. I bought a couple more deals in, uh, like '13 and '14, uh, maybe 2 more deals with, with broker friends of mine that brought me, you know, a building where the seller wanted to sell, they had a tenant that wanted to lease. And at this point, I mean, I was really— I should have come back earlier, but I was afraid of my own shadow, having personal guarantees on a lot of loans that got— that made maturity, were in maturity defaults, but were functioning financially and the banks were working with me. So I wasn't out trying to take on more debt. And I missed the very early window, but that's basically how I began. And then I guess I'll continue to the formation of IOB. So I had kind of— these were all around Chicago. I was not on the national scene at all. And I started to scout some other markets to just to see if the fundamentals, the high barriers to entry on zoning, low vacancy, and strong tenant demand were prevalent in other large markets. And it was like identical. I mean, every broker I went and talked to was like, we don't even work on them. You can't find this stuff. And so I started to build a business case to go out and raise capital again. And I was able to connect with a group called BLG Capital Advisors, who's a Chicago-based PE firm who does a combination of traditional PE buying companies, and they do real estate investments, both, you know, one-off investments and into development primarily. And they were interested in backing some operators. I'm not I don't know if they backed an operator yet. I think maybe they'd been involved third party and invested into somebody else's structure that was doing that, but wanted to do it on their own. So I had a relationship with, with, um, with the guy, uh, that ran that, that, uh, business unit, John Bilton, uh, through, through my, you know, Chicago real estate, uh, brokerage, uh, days. And so he and I got together and he was like, I— he goes, I love this. He goes, like, I can't believe— he goes, this checks every single box fundamentally in his— so he exercised me for about 18 months to really prove out how scalable it was, how big the market was. And because, uh, RealTerm had already institutionalized truck terminals, but really strictly truck terminals, and I was saying You know, truck terminals are the tip of the iceberg. There is— they literally are like 5% of what we now consider IOS. And I said, forget about just focusing on truck terminals. It is so much bigger. Truck terminals are— there's 50 users for them, and RealTerm has already aggregated all of the people. All the carriers that want to download those have downloaded them and they've bought them. It doesn't mean like there's never going to be a truck terminal sale again, but the the wholesale move of those assets in, into, um, you know, uh, off the corporate balance sheets and, and into real estate investment has kind of taken place. And it's gonna— there'll still be a, you know, a, a trickle, a low volume of deals. But remember, this is like maybe 5% of the asset classes I define it. And I, I think the opportunity is so much bigger, not to mention Many of these other asset types, the low coverage warehouse and the maintenance building, appeal to a much broader user base than just the 50 LTLs or less than truckload carriers that move all the less than truckload freight around the country. I said, you know, you've got everybody from utility companies to equipment rental companies to the, the, the, the, you know, the Caterpillars, the big manufacturers of heavy equipment. Shit, school bus companies need these kinds of facilities, and all your bulk building material companies need them. So anybody distributing roofing materials, distributing fencing materials, pipe, you name it. I mean, there's literally thousands. In fact, we— I run into new uses for IOS as long as I've been doing this. I run into new uses that I haven't thought of or haven't seen. They're obvious, they're right under your nose. I run into them, it's not as frequent as it used to be, but I still run into them every couple of months. We just did a deal with IES Infrastructure, company I'd never heard of. They're a $3 billion publicly traded company. We did a deal with them in Central PA about a month ago, and they manufacture and fabricate Large vaults basically that house electrical components that are found in data centers, but they're not data center exclusive. That's a big category for them because data centers are going up all over the place, or at least they, you know, there's a bunch in the pipeline and a bunch that have been developed. But they make bus duct, and not everybody knows what bus duct is, but I know you do, Chris. All industrial guys do, and it's how they move big big large calibers and large volume of wire around a manufacturing environment. So these guys make all that. And I run into companies, you know, fairly frequently— not as many as I used to, but this is as recently as 2 months ago— that I'm like, I've never even heard of them. And, and they're a big, big major company. So it's, it's a really intriguing side of, of, I think, the industrial real estate business. So that's, that's sort of how we got it going.

Tom, it's incredible just to hear about how you've pioneered this space, you know, bringing IOS from what it was known as low coverage industrial to what it is today. I'd love to hear about some of the challenges associated with proving out a new asset class or sub-asset class from your experience. And then also, Chris, it would be great to hear about throughout your career how you've seen IOS evolve and some of the challenges there.

Sure. Go ahead, Tom. Well, I think that the biggest challenge was nobody tracked it. Nobody even— there wasn't even a name for it. So when, uh, when BLG challenged me to prove out the, the size, the scale of the market, you know, I have lots of brokerage contacts. So I, I, you know, I called into JLL, who's got pretty good market data. I, I called into, uh, CB, Cushman. I, you know, I called into Avacen and, and nobody had any, any data really around. And I went— then went ahead and got a hold of CoStar. I had a CoStar subscription and CoStar, I spent, I spent probably between maybe 4 meetings. I bet I spent 12 hours with CoStar. Trying to come up with a way to use their data and all of their different screening boxes to come up with a way to kind of, you know, triangulate how much of this stuff was out there. And we determined through that that it was about by building square footage now, And I'll get into that in a second. But by building square footage, it was about 10% of the industrial base. It like, you know, 9 to— I think it was 9 to 11 or 12% of the industrial base is what we saw by doing FAR searches, floor area ratio searches against the total inventory and doing it across all of these markets. And what's a little misleading about that, because we later went and hired We later went and hired research out of CB to further, like, to basically boil that down into asset values. But to put that in a little bit of perspective, these are small buildings. So when you say it's like roughly 10% of the industrial base by building square footage, Some of these have almost no building on them, and they needed to have some building to even be trackable. So the ones that have no building aren't even in the— on the list. And when, when you say like a, you know, a 10,000, the sweet spot for IOS buildings is between, let's say, 5,000 and 50,000 feet. But that might sit on a 6, 8, 10-acre site. So it's not really indicative of what the underlying asset value is. It's just saying it's 10% of the building square footage is connected to these small buildings. So that was enough. They were like, well, what we could extrapolate out from that, damn, they're like, this is a huge market.

Interesting.

You know, I mean, it's very, very addressable. You know, I mean, there's more here than, than, than, you know, we could ever, you know, on our own. So that cleared that hurdle. And that was the biggest— that was probably the biggest hurdle in getting them interested. And then at about the same time, Alterra organized and launched. Like, we had no awareness of each other, but we both came out. I should ask those guys because I'm friendly with them. Like, we launched at the end of 2016. We signed our documents in November of '16, we opened the office January 1st, '17, and with 4 people. And, and so we've scaled, you know, substantially since then. But I'm curious, I know they came out around the same time, and I'm gonna need that factoid. But we launched right around the same time they did, became aware of each other over the course of probably the first 12 or 18 months. And they've been really successful. They're great investors.

Yeah, I'll chime in and talk about like kind of my experience with it, which is limit— which was limited until just recently, uh, you know, the last, you know, this last wave, this over the last, I guess, 6 or 7 years or so. But, you know, when I was with another firm, we, uh, Maersk was one of our clients, the big shipping company. And Maersk was looking for— this is probably back in the Uh, early 2000s, they were looking for a yard or they needed some container yard or storage. I mean, frankly, at the time I had no— I didn't even know how to find it. I mean, there's no— there was no inventory. This is like what Tom was saying, there's really no inventory of it. You couldn't track it. And it was, at the time, it really wasn't lucrative either. So as a tenant rep, you know, why, why spin wheels on something you barely make money on? And let's say it's owned by some private guy who doesn't even want to pay commission on it. So for a long time, it, it just wasn't really even a sector that garnered any attention. The only areas that sort of looked attractive in my view were the terminals, the truck terminals, because you could kind of see it kind of look like a building. You kind of had— you could figure out sort of who would use it. But the problem with that sector was, as Tom would know, is a lot of the LTLs created this sort of, uh, uh, consortium of LTLs that only would sell and lease to each other. They, they didn't like brokers.

They didn't want to work with brokers.

And so I think that's unlocked a little bit over the last few years. But early on, like, it was really hard to do a truck terminal deal because they kind of kept it within their own little truck terminal, uh, cabal, so to speak. And then as we sort of, uh, got into this deal up in, in Charlotte and then others, we had a guy on my team, Greg Gaines, who really just jumped in. And he's, he's— I consider him an IOS expert now here in the Southeast.

Oh, he is. He's great.

Yeah, yeah, he's really taking the bull by the horns. And I think that that's a great lesson in these new emerging sort of product classes is that, look, you know, ride the wave, right? And the data center is another one, but that's a whole nother animal, right? You know, I don't want to get into that. But on the iOS side, we started riding that wave. And so we did yards, we did, uh, different, um, uh, you know, terminals and, and other sort of low coverage kind of deals. And it just seemed to make sense. And the way I look at it is in, in our market at least, in some of the markets we operate in, this transition from kind of a local owner or a mid-tier owner to an institutional owner, that sort of pretty much has happened in industrial kind of everywhere. And that happened probably in the early 2000s where you had this sort of transition from an institutional sort of owned model. And that's still happening, I would say, in IOS. And I think that's what's attractive to it is A lot of the folks that still own it are smaller players, they're mom-and-pops or whatever, and they're looking to monetize it. And so it creates an opportunity for folks like IOV, and he mentioned Alterra, and there's a few others, Realterm, that there's just now a whole kind of like takeout party or this takeout institutional capital that is transitioning these assets into more of an institutional model.

Yeah. So great points there. And, you know, Chris, just riffing off that last one where now that iOS, everybody knows what it is, it's no longer a secret. And that's a great thing if you wanna package these, monetize them, bring them out to the JPMorgans of the world who are out there buying these packages. So I guess the question then becomes, how do you continue to find these opportunities when I guess, I mean, on one hand, there's probably more, certainly more competition for finding these one-offs, but I'm also thinking about, If I'm a seller, I don't care what you're doing with the property. I don't care if you're parking trucks, building a building, going for a zoning change. I want the highest price, right? So, the question is, you know, how are you still able to buy these under their current, you know, if it's land or, Tom, going back to your example of a 5,000, 10,000 square foot building on 6 to 10 acres, you know, how is it possible that you can still buy land where you're not competing against the data center, you're not competing against, you know, the developer who's gonna go convert it to residential? and still use it for its existing use?

Well, that's a great question. As far as like the data center set goes, we're never gonna be able to compete with the data center. But that— but not every industrial site is set up for a data center. In fact, it's really unusual that we compete against data center. When we see something lines up for a data center, we, we pretty much tap out and don't, don't waste our time cuz no one can pay what they can pay if it meets all of their, you know, all of their criteria and checks their boxes. But, you know, residential, most of what we buy is in areas that tend to be quite heavy and are cocooned by heavier industrial. And I guess one of the misnomers or a misnomer is that it's gotta be the heaviest industrial zoning. It really depends on this, on the town and city. city, but it's going to require at least medium to heavy industrial zoning. And most of those areas are not conducive to residential conversion. Sometimes they are. And depending on, on how it, on how it prices, we may be able to compete with that. As far as industrial development goes though, unless it's a really large-scale site, and by that I mean You know, north of, you know, depending on where land values are in a given market, but probably north of 10 acres and has really good geometry for new building. We're pretty competitive with, with developers. And even depending on the character of the buildings, we can compete on stuff that's even got, you know, that's bigger than 10 acres. And the reason for that is They get absolutely no value from the existing structures. Okay. Nor do they get value from the site work. I get value from both of those things. So if I can buy a site at basically land value in a given market, and the building is considered a throwaway by a developer, and they assign no value to the site work because they're going to tear the whole thing up. And in fact, The building burdens their overall cost because they have to take it down. I can— and the functional attributes of the building that I need, I need 16-foot ceilings to put a 14-foot door to allow over-the-road equipment to enter the building. That is my functional threshold. And as long as the building has 16, 18, 20-foot ceilings, it's very functional. For my uses, even if I have to put major money into it, I got to buy a new roof. Maybe it's high coverage and I'm going to knock down 2/3, 3/4 of the building and remanufacture the shell. I'm still way ahead of replacement cost for that type of product in that market, because remember, I bought it at basically what land value is. So we, we do a lot of heavy physical repositioning, which is a big differentiator for us. from some of the other, most of the other IOS investors, you know, and a large amount of capital has come in. You know, you hear about all the capital that's come to IOS. The vast majority of that has come in for stabilized assets. It's not like there's no other capital for value-add, but the value-add capital is much more interested in stabilized, short leases, under market with mark-to-market opportunities. Not a lot of people are set up to get their hands dirty and remanufacture a site or do ground-up spec. We do both. So that's, I think, really our biggest differentiator. We have in-house, um, construction management. So from a budgeting and execution standpoint, nobody does it better than we do. Uh, and so we're able to attack opportunities that most other IOS investors are, are like, you know, they can't get them approved at their investment committee, and we're really built to do that.

That's great to hear. And, and part 2 of the question, and, and maybe, you know, Chris, you have some experience with this as well. I, I still have to imagine that on one hand you are stabilizing, you're putting, you know, long-term leases in place, but I gotta imagine some of these areas over the span of 5, 10 years radically change. I'm trying to remember the guest we had on the show who said that he used to buy drive-in movie theaters, why you could keep some income going and then the whole area, you know, continues to grow. So, I do have to think that some of these down the road, maybe the appeal to the investor would be, okay, you're going to get strong cash flow, you know, for the long term, but it almost becomes a covered land play because maybe in, you know, 10 years, maybe it will be residentially zoned. Maybe the industrial area will be pushed out. So, I mean, Chris, do you ever see that with any assignments where— You know, it's been, you know, leased for the land, but, but now there's a higher and better use?

Yeah, absolutely. We actually have one right now here in Charlotte, just right outside of Uptown, that Tom and his, his team took a look at, and we should be closing on it actually next week, where it's a 7-acre site. It's in a part of town called North Davidson, NODA, and there's— if you look around, there's nothing but multifamily around. There's like— there's some, you know, kind of cruddy industrial nearby, This was an International Paper recycling center that had been there, I don't know, since the '50s, got a rail spur going into it, had a lot of dynamics that really worked for IOS. But ultimately, it should be a multi-site, right? So what I think will happen is we'll sell it, we'll get a 5-year lease in place, and hopefully, you know, we would probably structure with no renewal options so it could be a a, a, a reposition at the time that it expires, and there'll be a, a nice pop when it, when it, when it converts to a, a multi-sale. But as you know, in our market and a few others, the multi-market like right now today is a little, a little overbuilt. And so hopefully in, you know, 5 to 7 years, that'll, that'll be different. But, you know, I think to Tom's point, some of the better iOS sites are surrounded by— they're, or they're in the middle of like the biggest submarket in Philly or in Columbus or in Nashville, and you have all these groups that are maybe not— they don't have the trailer storage that they need, and they need a place to park trailers. Or there's a Sunbelt Rentals group or Herc Rentals or whatever, they need to service the industrial clientele nearby. And so those seem to be more prevalent. This one's sort of an outlier just because of the way IP had their historical, uh, recycling operations. But I think it's, it's definitely true for— I think if you've ever—

if you—

and I think Tom could probably address this— in a very mature or older industrialized city like a Philly or a Cleveland, Pittsburgh, you, you might see what I just described more so than you may in Atlanta or a Sunbelt community. I don't know, Tom, do you have experience with that?

Yeah, no, that's true. I mean, we've done over 120 deals and I think we've underwritten kind of a, you know, non-industrial exit. I mean, you could count them on one hand, really. I mean, and Chris's deal was one of them. Well, I would say we're not very good at— I mean, we missed on Chris's deal. Another investor was awarded. I think we were very close.

You were.

I mean, we were like, we were so close. I was really hoping he was going to call and whisper to me at the end, but he's got too much integrity. For that. But he's got a good buyer and they are going to close next week. But it's— it is tricky to underwrite, uh, that for us because we really— like, these are mission-critical facilities, okay? And, and mission, mission, uh, critical. And, and, uh, what was the COVID term? Essential businesses. What we discovered during COVID early COVID, like, like, you know, we were Recapping our portfolio, we rolled out literally on March 1st and everything shut down on March 15th. So you talk about bad timing. And the big question— it took us all year to do it— but the big question people had to ask was, was like, how is this impacting your, your tenants? And what we discovered was literally every single tenant that we had in our portfolio, and then every single tenant that is in the category was an essential business. And so they really didn't slow down, they sped up during, during the, um, during COVID uh, during the pandemic. So these, like, these— there's already a a shrinking supply because of upzoning. And these are absolutely critical to the movement of— even though people hate them, like communities hate them, uh, because of the outdoor storage, you know, some places call it pigpen zoning. I mean, we fix ours up and make them look as nice as you can make them look, but the movement of building materials, the movement of heavy equipment. All requires the movement of freight that connects all of these warehouses, all require IOS. I mean, it is so damn required for the economy to function the way it's functioning that, you know, people wanna move it out to the outskirts. It really can't go to the outskirts. You know, I, I mean, it really needs to be— think about all of the building materials that, that have a will-call component to them. People aren't gonna, you know, like you need to rent lift equipment and, and so forth. You can't drive 75 miles to go get a piece of lift equipment. I mean, that's, that's why I like the United Rentals and the Sunbelts. They, they have around a, a large metro area. They, they have a significant footprint. They might have 5, 6, 8 of those things because they need to address almost submarket by submarket, have accessibility. To that, to that equipment. And, and, um, I think a lot of, of, uh, people who say that— I mean, with all of the e-commerce and, and, uh, household delivery, it— without IOS, you can't complete the last mile. So we point that out a lot of times to, uh, to communities, and, and we're very aware Like, we take buildings that were sometimes built in the, like, the '50s, '60s, '70s, '80s that have had the crap beat out of them, and, and we make them— we put them in like-new condition. That's one of the ways you drive rate and you attract, uh, national tenants as well. So we close on them, we do all of that work, uh, on, on spec. I mean, when, like, when we're done making them tenant ready, you can, like, eat off the floor. Floors. I mean, they're they're immaculate. The landscaping is cleaned up. The the paving is cleaned up. The exterior of the building's been repainted or recited if it's in bad enough shape. You know, a lot of times we're putting in new windows. We're like into the office sections. We're placing overhead doors. I mean, we can take a building. We bought one in Denver that was built in 1947 and made it put it into like new. condition. I mean, people were shocked. And this was very early on in the, the, uh, IOS movement. And when we bought it, I think in 2017 or early 2018, and people didn't even know— well, the IOS wasn't even a term yet. And everyone expected— it was right on I-70, just like 3 miles north of downtown Denver. The whole universe expected we're going to tear it down. It was a 10-acre site and build a spec building. And when we started fixing it up, people looked at us like, like we had 3 heads. And then we wanted $18 a foot on the, on the building. People laughed. They were like, who's gonna— $18 a foot for, for an old broken-down warehouse building? But the rents skew higher because of all the landmass this little building supports.

Mm-hmm.

So you can't really look at what the rate is per square foot on the, on the building. and assimilate it to what warehouse rents are because the coverage is so much lower and warehouses aren't burdened by all of this extra land. So when you take all that land value and land improvement and uplift it under the small building footprint, of course the rent per square foot is going to be high because the price per square foot on the little building is, is much higher.

To James's point about IOS being a great covered land play and an option for redevelopment should there be a rezoning. I imagine it's also a really great solution for, for the tenants themselves if they would like to expand and utilize that space. So speaking of creative solutions for tenants, let's talk about your Park My Truck program in Texas. We saw that in 2017 you acquired one of the largest operating truck parking businesses in the US and launched a managed parking and iOS solution. So walk us through what that looked like, and is that like a, um, a structure that you'd like to replicate for other tenants, or how did that come about?

Well, we bought it, um, from a trucking company that operated a truck parking business as a, as a side hustle, uh, and it was, it was big, it was significant, and, uh, we were gonna— we really bought it with an eye on, on breaking it up into smaller iOS sites until we met the manager, uh, and, and she was, she was gonna be, be let go, and she had quite a business there. It has 24/7, um, security, which is unusual for, for trailer parking, uh, lots. Most of them do not, are not, uh, manned with, with gate security, live gate security. That do check-ins and yard checks. And it has a fairly good proximity to the BNSF in Alliance, Texas. So it had a lot of containers and chassis in it. And as we met her and dug into it and we were like, well, what's gonna become of her? You know, and she was great. We were like, well, we have our business plan, like our base business plan. And we weren't going to have to pay any more for it to get the business. I mean, they were just going to let her and her staff go. So we decided we would try our hand. And, you know, we're really not set up to operate managed parking businesses. We're really a net lease investor. But we said, what the hell, we'll give it a try because we can always unwind it if we're not any good at it and go back to what our base you know, business case was for the, for the investment. Uh, and so that's, that's, that's what we did. And we put some improvements into it. We, we, you know, gave out some, some, uh, salary raises and benefits. She didn't even have health insurance. And, and, um, so we did all that, and, and we've been very successful, uh, down there. Now what we've discovered is it's The, the success of that business is really predicated on the strength of your manager. And in order to scale that business, we really felt after we got into it that we would need to set up a separate company from IOB and get some managed truck parking leadership similar to me on the, on the, you know, net lease or real estate investment side. And that's a pretty big commitment. So we really haven't done that. And, and what's, what's happened is that business has evolved massively since the, you know, since the, you know, uh, time that we, that we bought that. And since we started IOV over the last, like, you know, 8, 10 years, the managed truck parking business has drawn some really quality operators to it. And so I think we're a little too far behind. Uh, to catch up. And, and we have kind of made it— we talk about it quarterly at our board meeting, like, what are we doing with the Park My Truck? Like, should we, like, you know, hire somebody and put a team around that? We just, we, we haven't done it. So it's a, it's, it's sort of sitting out there. It makes money. Um, we're good at it because she's so good at it. Um, and, and, um, And her name is Stephanie, our manager down there. But, um, it— yeah, well, I don't know that we're gonna— that we're gonna do, uh, expand that, uh, just because it's become more competitive and we haven't really, uh, shown the, uh, commitment to, uh, put a management, you know, a broader management team.

That makes sense.

So, so, Tom, and jumping around a little bit here, but kind of looking back at your experience and career, so starting off as a broker You know, understanding the market, knowing the tenants that are out there. I gotta imagine that, that certainly has helped you become a better investor. And then also your time at Trammell Crow. I mean, we've had so many guests on the show, whether it's, you know, Trammell or it's Hines or Tishman, where, you know, you just got such a great education. So kind of curious how that background, you know, made you the investor today. And maybe for someone who's thinking about, wow, this space really seems exciting, I wanna get into it. And maybe, Chris, even question for you, you know, for brokers, if they said, hey, I wanna go, you know, focus in on iOS, like, is that too narrow out of the gate? So I know a lot of questions there, but, you know, more geared towards, you know, the person listening to the show right now who, you know, maybe they got a couple years in the business, Yeah. they want to try to get into this, like, what's the right track? How do you do this and, and, you know, become a successful investor or, or broker? Whoever wants to kick that off.

Tom, why don't you go ahead?

Yeah, sure. I, I'll, I'll say first, the, the, the Crow people are everywhere. I mean, Trammell Crow, uh, it's like I call it Trammell Crow University. Um, I mean, we are—

They got one of those at SMU, by the way. I've seen their, their name right up on the door.

Yeah, and, and it's a, it's a, honestly, it's a, it's It's a privilege for me to have been part of the Trammell Crow heritage and learn what I learned there. So I love the time I spent at Trammell Crow. And I mean, I barely got in the door. I don't even know what— they must have been asleep at the switch the day they hired me. I mean, at one time they had recruited more I think in the '80s they hired more Harvard MBAs than Wall Street, than the Wall Street firms. I mean, they hired more than anybody for a year or two. I mean, so it is loaded with brilliant people and they're spread out all over our business. So anyway, that's enough pumping for Crowe, but I love the company. And then as far as what I, I mean, I wouldn't, have had this success if I hadn't spent all the time I spent in brokerage. There's no way. I mean, it established relationships for me so that when I went nationally, I, I mean, I had to explain the, the IOS concept to— in all of these different cities. And the only reason people gave me the time of day was I was a former broker and they could very quickly Check out who's Barbera. Everyone's got a Chicago office, and you know I was known in because I was buying them here. If you went to anybody in Chicago and said, you know truck terminals, low coverage industrial at that time, who's who's the guy? Anybody in Chicago be like, well, it's Tom Barbera. He like I mean that's what he that that's what he does. And then my knowledge of the users and how the assets are used. All comes from my brokerage background. And so when you put me in front of a tenant and I understand exactly how they're going to use the building, the questions I ask, the, you know, I know a little bit about virtually every industry and every occupier, and it really comes through and it allows me to be more consultative. And then our team has picked up a lot of that, and that all 100%. Comes from the, the brokerage background that I have. Even the stickiness of building stats. Nobody remembers building stats like brokers do. I, I mean, rental rates down to the, down to the penny. How much free rent? How many square feet was the building? How much was the office? What were the ceiling heights? I, I mean, like, you know, look, the size of loading doors. I mean, I've got so much locked up in here. And people can't believe that you're able to regurgitate it without looking at that. But I like— people are surprised on the principal side and the capital side. I'm like, you know, you haven't spent a lot of time with brokers because every broker I know—

good brokers.

What's that? Good brokers. Yeah, well, every— yeah, and I spent a lot of time with good brokers, but all of the good brokers brokers that I know, I mean, have this stuff. It, it's not like they're sitting there at night studying and trying to memorize it. It just— they hear it once and work on a deal and it just gets locked in there. And I, I think that all comes from, from my, my brokerage background.

Yeah, my advice would be— and we did this here in our market— is, as Tom was saying earlier, the, the, there The data availability of how big a market is, like how many properties would be IOS, uh, who's— who owns them, who's occupying them. The first step I would do in any market or submarket, like if it's a— if it's a big market, you're probably gonna have to be submarket specific for a little bit because it's just— it's just such a bear to try to tackle. If you're in a smaller market, you can probably take care of it yourself, like a Charleston, you could probably just do the whole market. Is you got to start with the inventory. You have to inventory every site, every asset, and know top to bottom, as Tom was just saying, who owns it, who's financed it, who's occupying it. And, and then you create a database that then catalogs all this information, and then you start picking off some listings. I mean, that's just— that's the bottom line. I mean, you got to start somewhere, and I think nothing better than— I love getting listings, you know, we love getting listings. And so it— that's it. That's, that's how I'd get started. Just, you got to get one, but I think you got to catalog the market.

And it's an approachable asset category because it— the dollars aren't massive. So if you are trying to transition out of brokerage onto the principal side, it's not like you're trying to go do a, you know, build a hotel, you know. I mean, like, these are, you know, you can— if you start small, you can do deals, you know, million, $2 million, you know, and, and you can put your own money, you know, at risk or get a, you know, another brokerage buddy do exactly what I did. And, and you, uh, you know, you can get a, you know, get on base, hit a couple of singles, you know, and, and, um, you got to take a little bit of risk. Um, but the thing with iOS also, and I'm probably going to encourage a bunch of new guys But, um, if you can't get them leased, you can always sell them to users. So there's very little downside, honestly. You know, I mean, it's scary to sign a personal guarantee on a loan, um, but you— the— what really made me comfortable with it in the— when I first started out was I really felt like if I can't lease this thing, if I bit off more than I could chew, I'm at least gonna be able to get my money back and find a user that'll pay what I paid, you know, so, and pay my loan off. And I've never had to do that. We've had one deal near the Port of Long Beach that we bought a couple years ago that we paid a lot of money for and we couldn't lease it. We got all our money back. We finally were like, after about Moving in on 2 years and unable to get a tenant to occupy it. And we did have users that were interested. We got all of our money back plus the money we put into it. We made like a 2% return, but we were— we had no equity impairment on it. And so, I mean, that's the case study for it.

Tom, this has been great. One final question before we hop off. Any advice for someone who is looking to start a business or, um, maybe wants to be as courageous as you and go out and prove out a new sub-asset type, what, what is the largest piece of advice that you would offer someone looking to do that?

Don't, don't— you know, you can ask people's opinion and ask for their advice, but don't listen to them. I mean, listen to them, listen to them. The best piece of advice is don't listen to me. Don't, don't be be talked— no, no, but, but don't be talked out of pursuing something that you really feel. Do you know how many people told me this would never institutionalize? I mean, for like, I thought it could be institutional from the early 2000s, and I listen to people, and I'm not going to mention their names, but they know who they are. And, and like, friends of mine— No, friends of mine that had like big reap experience. Uh, and it— but both of them, or both of them is more than, than a couple people, that put— 2 in particular, if they're watching, if they're watching this, they'll know like who I'm talking about. Both came up to me after we launched ILV and were like, man, was I wrong. They, they, they like— so I mean, they're, they're great friends of mine, guys I really respect, uh, that just didn't think that, that you'd ever be able to raise any institutional capital around this, this, uh, concept, even though the fundamentals are as good as they get. And, and I looked at it, I was like, people are raising institutional capital to buy scrapyards because it's such a good business. If you can raise PE to do that, you can do it here. But whenever you want to do something that is sort of of pioneering. You will find way more people that are afraid of their own shadow. And I would tell you, whoever you seek advice and validation from, make sure it's somebody that has actually done that. Don't think that you're going to get great validation from somebody who's collected a salary and a bonus, even if it's a big salary and they've been really successful. And they worked at JP Morgan, or they worked at Goldman Sachs, or they worked at like any of the big, big places where you're like, they got to know what they're talking about. And they do, but they are not risk takers. They have not gone out and swam against the current. So if you are looking for validation, try to get it from somebody who has actually done what 99% of the people have told them it will never work.

Wow.

That would be my biggest— because if I listened for a long time and had I continued to listen, this whole thing would have happened without me.

Yeah. Well, Tom, this has been amazing. And your parting advice, I mean, you're directly straight from the source. Chris has called you the godfather of iOS. You've certainly earned that distinction. So we just, we really appreciate your sharing your story. And Chris, thank you so much for teeing this up and your perspective on this. So thank you, gentlemen, again for joining us.

Yeah, my pleasure. Thank you to all of you for inviting me.

Wonderful. And thank you all of our listeners out there. We really appreciate your sharing the news, sharing this with a friend you'd find interest. You know, we love your comments, your ratings, so please keep it up. Until next week, this is your host— co-host James Nelson with Kim Troller. Thank you again.

Thanks so much.