Grant Pruitt  0:00  

2014 2014 is when Toyota announced that they were going to be moving to Dallas Fort Worth from Torrance, California. And at the time, I knew that it was going to be a big deal, but I really didn’t understand how much it was going to impact the market. Because they announced that they are going to go to Plano, Texas and they moved there in 2016. And at that point in time, literally, we were still grazing cows and horses on most of the land that’s out there. And if you drive out there now it is urban as you can get with, you know, 2030 storey buildings and shopping malls and, you know, restaurants and density, multifamily living excetera This is before the Cowboys moved their their practice facility out there and all the office space out there. I mean, literally there was there just wasn’t a whole lot out there. And Toyota built a city.

Announcer  1:04  

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.

J Darrin Gross  1:24  

Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. 

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Today, my guest is Grant Pruitt. Grant is the co founder and president and Managing Director of White Box Real Estate LLC. Grand Lodge the firm has a tenant focused real estate advisory investment sales and development firms to specialize in offering a custom tailored approach. And in just a minute we’re going to speak with Grant about the commercial industrial real estate of the market in Dallas, Fort Worth, Texas. 

And before we get started, quick reminder, if you like CRE PN Radio, there are a couple things you can do to help us out. You can like share and subscribe. And as always, we encourage you to leave a comment. We’d love to hear from our listeners. Also, if you want to see how handsome Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. Without alone welcome my guest, Grant Pruitt. Welcome to CRE PN Radio.

Grant Pruitt  3:18  

Thank you for having me.

J Darrin Gross  3:21  

Well, grant I am delighted you’re here and looking so forward to our conversation. Before we get started, if you could take just a minute and share with listeners a little bit about your background.

Grant Pruitt  3:32  

So I was born to do real estate. I am fortunate from a background standpoint to have grown up in this business. My My parents are both real estate brokers. I started in this business when I was in high school, knocking on doors cold calling warehouses on the east side of San Antonio. And I loved it. I thought it was fun. I certainly didn’t want to do it as a living. I wanted to be a doctor as a kid because it seemed like they played a lot of golf and made more money than anybody else. So I did that when I was in high school when I went to I went to Southern Methodist University, which just got into the ACC excited about that and be a lot better games to watch than when I was there. But I I went to SMU they had a program called the BBA scholarship program and they took 100 kids from an incoming freshman class and they automatically accepted them in the business school. The only way I got into this program was because my resume was stuck to the back of somebody else’s resume. There was absolutely no reason that they ever would have let me into this program. And it was it was a once in a lifetime opportunity I knew and I I took it I was actually pre med when I went to SMU, because I still didn’t want to be in real estate. I thought that real estate would be a good side job for me while I was going to school. So I started looking for opportunities to work in commercial real estate firms just because of that, and couldn’t get anybody to hire me. Simultaneously. They, I through this program, I had the opportunity to take business courses because, you know, they they talk about majoring in business and studying business. And I remember as a kid, what is business? I had absolutely no idea what business wasn’t. And how do you major in something that you don’t know what it is. So suffice it to say, I had a really good time, my freshman year, and I needed to take some easier courses to get my GPA up so that I didn’t lose my scholarship. And I was pretty good at real estate. And I wouldn’t have bad at Spanish either. And so that from a educational background got me into it. And at the same time I kept looking for somebody to hire me, nobody would hire me. So I went back home. And my father said, You know what? He learned how to do warehouses last summer while we do office buildings this this summer. So I started working in helping him with office buildings the next summer and I got lucky, I went back to school, and that fall stream Realty hired me. And I got a job working as an intern doing downtown office leasing. And it was awesome. That was that was the break that I needed. I, I loved it. And I thought it was the just unbelievable, you know, I got to office in a 50 storey office building and growing up in the same Tonio area, you know, the tallest building was a 36 storey hotel. So I just thought it was unbelievable. And as I went through school, I did really well in real estate. And I really enjoyed working as a commercial real estate professional. So when I went to get out of school, I had been seeing all these tenant representative brokers, or real estate professionals, tenant advisors that were coming into town touring these listings that I had, and they seem to be having way more fun than I was, they were making more money than I was, and they seem to enjoy it a lot more than than then then I was enjoying what I was doing. Because, you know, the tough thing about being on the leasing side is you can show a space 100 different times, but nobody leases it because you really don’t have any control over that. And they always teach you, you know, after the listing when they tell you that they didn’t select your building, well, what could we have done different? And the answer typically was well, if you tore the building down, moved it to another location had a completely different design configuration different space and built it somewhere else, then we would have leased it other than that you had no chance of ever leasing this and I had a I had a couple of spaces that had this sub this cutback in them with a column there and so that really inefficient and I knew that and I said you know what? I’m gonna I’m gonna try representing tenants. And I’d like say the rest of his was history, but it wasn’t. So I started when I first got out of SMU I started working on the tenant side at stream Realty and I say oftentimes it was a wonderful experience, you know, stream had just turned 10 years old. I think they’re 25 years old or something like that. Now, you know, they had their headquarters in Dallas they had just opened Houston and and Austin San Antonio now they’re all over the place. They’ve gone from, you know, what was a boutique at the time to being a really a large national force. And I was fortunate in a couple of ways and that a I got the exposure to the founders of stream Mike McBean and Lee Belen. I mean they were there day in and day out every single day, I used to go to lunch with them, they probably don’t even remember going to lunch with me, but it’s very impactful for me at the time. But what I found was real estate companies, when they’re boutiques typically have a bent and they had a leasing bent and I was focused on the tenant rep side. So it really was was a difficult place to do tenant representation. And I had a cousin that was working at Cushman and Wakefield. And he knew that that I was struggling. I mean, I was really struggling and he knew that I was looking for a good mentor in the tenant rep side. And he called me said hey, there’s there’s a guy that works here Cushman. He’s, he his his, the the junior that worked for him, went to go work for some startup that nobody’s ever heard of called Salesforce out in California. Probably a terrible move. And if he’s listening to this, I think it worked out okay for him. He, he’s done very well for us. But it opened the door for me to go work for Mike Wyatt and Bill McClung. And they were fabulous mentors for me. I had a junior broker that was kind of a co partner, if you will, will. And that really launched my real estate career was working with him and for them. And at that point in time, Cushman and Wakefield in the state of Texas didn’t lease buildings. This was before the cousin’s acquisition. This was before the DTZ merger, and it was a tenant rep only firm. And that’s what I did. That’s what I specialized in. I absolutely loved it, you know, the industry started to change, the company started going public. Cushman was acquired by TPG, Texas Pacific Group that also acquired a company called DTZ. They were going to merge them take them public, they ended up doing that. And I really saw a change in the industry, I saw shift from what I used to do, working with tenants, buyers, users of office and warehouse space, to focusing more on facilities management, and what they considered sustainable recurring revenues that Wall Street was demanding. And I got really lucky, because I was I was frustrated, I knew that the business was changing, I knew that the industry was changing. And I had a really good friend and client. And my intent was to call a couple of clients that I was really close with and tell him that I wasn’t sure what I was doing. I was looking for some advice.

He travels a lot. And he happened to be in town and I happen to have done his office lease directly across the street from where our offices were. So I called him up and I said, Hey, I want to see if you know you’re around in the next couple of weeks, I’d come by your office, I was like, Well, I happen to be in town today. And I have an hour that’s available. So you know, call it a godson call it whatever, it was amazing. So I go over to his offices, and I said, Hey, look, this is what’s happening. There’s a change in the industry, I’m not sure really what to do. You know, I could change the jersey, but it’s still be playing the same game and wouldn’t be any different. And he said, Well, you know, have you ever thought of starting your own real estate firm? I said, Well, I thought of that. But you know, I’m a, I’m a good young real estate broker, a good young salesperson, anybody that’s in sales, and I don’t have enough money saved up to be able to launch a real estate business. And he said, I will tell you what I want you to go home, think about what it means to own and operate a business. If that’s something that you want to do, I want you to put together a business plan for me. And I’ll be back in two weeks. If I like it, I’ll back your business. If I don’t, or if this is something that you don’t want to do no harm, no foul, we’ll part ways. And that’s how whitebox got started. I had the lucky golden ticket. And you know, I haven’t looked back though, seven and a half years ago. And here I am today. And as a company, we we focus on tenant buyer user representation of office and warehouse space. We have a group that does investment sales, specifically in the RV and self storage units space. We’re growing that one as well. We have an office, our headquarters here in Dallas, we have an office in Houston, we have an office in Fort Worth, we have an office in DC, and we have a little satellite in Austin, Texas. And we’re continuing to grow. We’re continuing to grow our headcount. We’re continuing to expand the business. And we’ve been fortunate to do about in the last seven years, one and a half billion dollars worth of real estate transactions. I’d like to be able to tell you how many 100 million square feet were the space that is, but I’m not really sure what that is. You know, and I know in one year we did deals in 44 states, six countries, three continents at this point in time. I think you’d be hard pressed to find a state we haven’t done work in. And I know we haven’t done work in Antarctica, but that may be the only continent that we haven’t worked in. And so, you know, we’re we’re full service on the tenant side. You know, I say we’re like a visa anywhere they want to be that’s where we are. That’s where we’ve done work. And, you know, we work with with groups that are are small we work with very large publicly traded corporations and everything in between?

J Darrin Gross  15:06  

Wow, that’s an exciting kind of a story there from your start in high school. And you mentioned both of your parents were in real estate, were they both commercial or were was one residential or?

Grant Pruitt  15:20  

Yeah, all commercial. So my mother was in Residential Lending, or excuse me, commercial lending, non residential, commercial lending in the 1980s. My father was working for a developer in the 1980s. Neither one of them was doing that by the time the 19, say 9293 94 rolled around. Because if you’re familiar with the real estate cycles, especially in Texas, just about every bank, except for Frost Bank failed in this state, including the bank that my mother worked for, all the developer developers, or most of the developers went out of business, and a lot of people ended up going into the tenant rep space. And so actually, both my parents are tenant rep brokers at this point in time.

J Darrin Gross  16:10  

That’s, that’s definitely in the family. And sounds like you’re you said your cousin was also, I have also

Grant Pruitt  16:16  

Yeah, have a cousin that does multifamily. My brother is a leasing agent in Houston. I have two uncles that are in commercial real estate. And, you know, I do get people all the time that say, Well, how long are you going to do this? And how long is your family going to do this. And that’s what’s great about the business that I’m in is, it’s kind of like being an attorney, you can dial back the hours, but you’re always off counsel. That’s what what I do is like is that you may not have to do it at the same pace, but you don’t ever have to get out of it. And so what you find is a lot of people like me love what we do. And I’m like, you know, I just I don’t know, if I’ll, if I’ll ever really hang up the cleats? You know, I can’t imagine the idea of not doing what I’m doing. Because it makes me happy.

J Darrin Gross  17:05  

Yeah, I I would guess so. I mean, based on, you know, just your, your path there. And it sounds like you’ve had the challenges early on, and how the industry has changed. I think that’s one thing that I think it’s a, you know, more recent for a lot of industries, just the the interruption or the, you know, the the opportunity to change, whether it be the technology or just the financing or or the investors or whoever it is, it seems like there’s been a lot of industries that have gone through change. I was curious, you mentioned the change that happened and and with CBRE or Cushman, you said, you’re with they when you when you started, they were primarily a tenant rep. Firm

Grant Pruitt  17:54  

in Texas. And they were much smaller, you know, they’re probably six to eight times the size now that they were then maybe maybe more than that.

J Darrin Gross  18:09  

Got it. So is that is that pretty much you mentioned, like Wall Street, kind of the facilities management kind of model to, you know, continue to get those recurring revenue streams is that is that pretty much the model now that most of the big commercial real estate brokers are using this and more that facilities management so they can have those consistent revenues?

Grant Pruitt  18:32  

Well, publicly traded or firms with publicly traded debt, which most of them are at this point in time, they derive over 50% of their revenue on that. As a general rule of thumb, most of the big publicly traded real estate companies derive about 85% of their revenues from working with landlords. It didn’t used to be that way. 1520 years ago, but it’s evolved to that. Because it is lame, it is Wall Street driven. And and, you know, I totally get it. Wall Street doesn’t deal with the seasonality that the brokerage business has, you know, the, I’m in Dallas, and in I’m so glad that we’re out of the summer, because in August, it was almost 100 Nate every single day. And you can imagine how many people were here in Dallas, wanting to talk about office or warehouse space, when it’s 100. Nate, they were all in Aspen or somewhere that was much cooler than then this part of the country. And so, you know, what you see is you see an ebb and a flow when you’re I mean, we’re transaction, we’re transactional business, we’re service business. We’re not, we’re not doing monthly retainers, like you would be if you were selling light harvest systems or, you know, facilities management or or just, you know, HVAC management systems, energy management, etc. Even consulting services. So it’s I think it’s hard to be publicly traded. And talk about that ebb and flow based on seasonality. It’s a lot easier to do that when you’re publicly or excuse me when you’re privately held.

J Darrin Gross  20:42  

And so, you lightbox you guys started out? More on the tenant rep side? Did I understand that you’ve also kind of migrated into a little bit of the the sales, leasing tax. So

Grant Pruitt  20:57  

we’ve always done the investment sales side, for office and for industrial. In fact, the building that I’m sitting in today, we represented the the buyers of this, of this building

the Self Storage in our V parks is an expansion from what we have historically done. So yes and no.

J Darrin Gross  21:27  

Yeah. Well, talking about Dallas, in the in the metro area for Dallas. From an outsider standpoint, you know, all I hear about is how Dallas and Texas and Dallas specifically is just kind of a magnet for business. You know, grow grow grow in inbound migration. Is that I mean, is that the case? Are you still seeing that to be the case?

Grant Pruitt  22:01  

Yeah, 100%. You know, the best way I’ve heard it described, the, there’s a gamma office that says, The best way to describe our inbound inbound migration is there is a 747 that takes off somewhere in the world, and lands at DFW airport, and all the people get off, but they never leave. And it happens 365 days a year, because that’s basically how many people are coming to the Dallas Fort Worth metropolitan area every single day. So every day you’re adding that and we’ve seen that from a from a headquarters standpoint as well. Goldman Sachs is is building a headquarters that’s supposed to bring 5000 jobs. Frontier Communications, just announced that they’re going to be relocating right around the corner, in Uptown Dallas for 3000 jobs. Wells Fargo’s building a headquarters that’s 3000 jobs. And those are really big ones not to mention, you have groups that are bringing several 100 jobs like Fisher Investments and so forth. It’s not so much those those relocations that drive the business it is, but it’s everything that’s that’s in and around that. And you know, I go back to 2014 2014 is when Toyota announced that they were going to be moving to Dallas Fort Worth from Torrance, California. And at the time, I knew that it was going to be a big deal, but I really didn’t understand how much it was going to impact the market. Because they announced that they are going to go to Plano, Texas and they moved there in 2016. And at that point in time, literally. We were still grazing cows and horses on most of the land that’s out there. And if you drive out there now it is urban as you can get with, you know, 2030 storey buildings and shopping malls and, you know, restaurants and density, multifamily living excetera This is before the Cowboys moved their their practice facility out there and all the office space out there. I mean, literally there was there just wasn’t a whole lot out there. And Toyota built a city. It really is a second downtown in Plano, Plano, Frisco. It is there because Toyota made that statement and brought their headquarters there. About 2000 Oh, probably 2014 15 My brother hadn’t moved to Houston yet and was leasing a couple buildings across the street or across the freeway from where Toyota was Going in, in a walk through this building that he was leasing, and he said, Yeah, 95% lease and I said Really 95% lease and he said, Yeah. And I said, Well, who were, who are these tenants? And he said, they’re all Toyota vendors. He said, they’re all coming. And they’re leasing space with one to three people, because this building had 1500 foot spaces that that’s all they had in this building was 1500 foot spaces, kind of a little bit bigger than executive suites, but smaller than what a traditional office space would be. And he said, they’re all moving here, because they do work with Toyota. And they need to be here close to their headquarters, and then the intent is to grow and take more space once they get presents. And that’s exactly what happened. You know, they came and took those small 12 1500 foot spaces, and now they’re in 10,000 feet or, and 20,000 feet, or 15,000 feet, or what have you, because they’ve grown and expanded with Toyota. And oh, by the way, there’s other vendors that service them, and they moved to the Metroplex to be able to service them. And so it really is this trickle down effect that you see. And that’s what we’re going to continue to see on the office side of DFW back, there was an article that came out yesterday that there’s two metropolitan areas out of the largest 15 metropolitan areas, and there’s only two that are expected to have positive absorption, and that’s Dallas, Fort Worth in Houston. And I think that that’s going to be B, I’ve no doubt that’s going to be the case.

J Darrin Gross  26:43  

Now, that’s, that’s a, quite a, you know, kind of a, a, I’m trying to say some sort of a, the exponent kind of a factor of a, you know, a large manufacturer moving to your your state or to your area. I mean, like I said that. I don’t remember how many jobs was you said that Toyota was bringing, but then all 1000 That was? Okay. So I’m just curious, do you have any sense of the number of jobs created beyond the the Toyota, I mean, all the support industries that work with Toyota and all I mean, that to me is, that’s an amazing,

Grant Pruitt  27:21  

my stats are really stale. They’re probably about seven years old at this point in time, which was right about the time that Toyota had moved in. But at that point in time, there’s a there’s you have the Dallas North Tollway that runs north south. And Toyota is on the west side of the Dallas North tollway. They’re on the south side of highway 121. And the Dallas Cowboys and there’s a lot of other corporate users that are on the north side of 121, just on the south side of 121, seven years ago, and it’s you could probably make the case there’s double that now, we went from six to 8000 jobs on the south side to 25,000 new jobs. So that was 4x. And that’s a lot more than just the 4000 people that came with Toyota, I would say that it might even be greater than that on the north side of 121. You may have seen it go to, you know, 3040 50,000 jobs on that side. So I don’t have the exact stat for you. But I can tell you that it’s it’s just astronomical. And that’s my point is, you know, that was 4000 jobs. Wells Fargo’s 3000 jobs, Goldman’s 5000 jobs, frontiers and other 3000 jobs. And, you know, the the list keeps growing and growing and growing. And you know, and that’s just, that’s just on the office side, not to mention the industrial side, which which I expect to continue to grow.

J Darrin Gross  28:54  

Really, so the number that you were talking about the the Forex, that’s you’re just talking about Office, not not the

Grant Pruitt  29:01  

Office users has nothing to do that’s irrespective of anything industrial in to add to that. You know, the the, we did a, we did a study and looked at how many office jobs we were anticipating, and this is two, three years ago. So the data is more stale now than it ever has been because we’ve had these announcements of new relocations. But we went we took a look at all the new jobs that were anticipated to move to the state or to DFW, specifically over the next seven years. And then based on that job creation, we figure that it’s typically about 300 square feet per person is the metric that Dallas Fort Worth uses, you know, other metropolitan areas could be a little bit you know, denser, but we’re about 300 square feet of person. So if you took how many new jobs were coming to Dallas Fort Worth, multiplied it times 300 square feet per person. And then you absorbed all of the vacancy that’s out there, because it was 900,000 jobs that were coming here. That was 22 point 7 million square feet. That’s no excuse me. Yeah, two point no 270 million square feet is what the number was that we calculated, we would need to be able to accommodate all those jobs. We only have seven, eight 80 million square feet that’s vacant in DFW right now. And like every other metropolitan area in the country, there’s a lot of functionally obsolete product that may have not been functionally obsolete, that is Class B product that no one is going to want to lease, we had some class C product. So let’s just say that we leased all of that, we would still need 200 million square feet, to be able to accommodate everybody that was going to be moving here over seven year span. Now, let’s just say for sake of argument that only half of that gets absorbed because of a hybrid work model. Okay. So instead of 270, you’re looking at 135? Well, you still are short, call it 70 million square feet, and that’s a view absorb all the dogs and cats that you’re not going to absorb because, you know, they’re functionally obsolete, they’re undesirable product, etc, etc. So the fundamentals long term are exceptional in this part of the country.

J Darrin Gross  31:46  

Yeah, I mean, that’s, that’s a definitely a demand curve, you’d want to be on if you’re, you know, in real estate, and you’ve got that many jobs and, and people need space. That’s, that’s a great thing. So speaking of the, the kind of the supply demand, is the, I mean, is it just booming with new construction down there, too, are?

Grant Pruitt  32:12  

We’ve had the same challenges that everybody else had, you know, 18? Yeah, 18 months ago, 1218 months ago, the hike in interest rates did not help construction financing. And there’s, there’s pros and cons to everything, you know, to everything, there’s an equal and opposite reaction, right. So you hear people say, well, development is is is going to stop and die. And that very may well be the case, we haven’t seen the new starts that we had seen in the past, there has been a real challenge to get the construction financing, to build some of these projects. And these are even projects that are pre leased, even there was one that was pre leased, had a bank as an anchor lease tenant, and they couldn’t get the financing for it. And you know, we’re seeing and hearing more and more stories about that. That’s, that’s a con that we can’t build that product. The the result of that, though, is that when you constrict the construction you when you constrict the supply, and the man’s demand is continuing to go up, even if it stayed level, but it’s continuing to go up, it is going to increase the value and increase the prices and the demand is only going to get more and more competitive. Because we’re not going to have that product. You know, if you look at a a high rise office building, it’s going to be three years to build that. And that’s once you get the plans and the permits, and you’ve broken ground on it. So if we’re not building anything for three years, and you see that stop, it’s it’s going to correct some of the high vacancies that we’ve had in the past. Not to mention, the biggest change that we’ve seen is changes in uses, or reuses of buildings. We’ve seen a lot of vacancy in downtown Dallas, go away because it’s either been transformed from an office building to a hotel. It’s been transformed to apartments or condos or it’s gone to some other type of use. And so that does that continues to impact and constrict the supply. And I think you’re going to see more and more of that in in good areas, I think the challenge, you know, I was talking to a buddy in Chicago. And they’re the opposite of what DFW is as far as conversions and, you know, adaptive reuses. So, for me, I said, you know, downtown has so many buildings that they’re converting the uses to or doing a mixed use. And I said, quite frankly, that may be the only class B product that from an investor standpoint I like, because you have the ability to convert it to a different use. Because I’m in Dallas Fort Worth, we have a lot of product that is on the northern edges of the metropolitan area, that’s 1980s products. So now it’s 40 years old. It’s brown brick. It’s two story atrium product, and it’s got surface parking. And it’s four streets off the interstate. Nobody wants to office in that product. And I don’t know what you do with that product, because you can’t really convert to use. You know, I’ve heard a story about a building like that that was under contract. And they said that they were going to turn that into warehouses. There’s a lot of pushback from the communities that are saying, well, this is an office building, we have homes right here, we don’t want warehouses there. And a lot of the problems on the fringe, you know, that’s where we don’t have industrial product, because there was so much pushback, and you couldn’t get the permit, you couldn’t get the zoning, it doesn’t really make sense to make them multifamily, either. So what do you do with this product? I don’t know the answer that if anybody’s listening out there, please let me know what the answer is. And we’ll go make a lot of money together. I don’t think anybody knows what the answer to that is now. But I say that, you know, I was talking to the buddy of mine in Chicago. And he said, Well, downtown is where we’re not seeing adaptive reuse, where we’re seeing adaptive reuse is in the class B suburban product, because that’s where everybody wants to be. And so you know, every markets different I think the one unifying thing, though, is that there is the workforce has changed. You know, if anybody thinks that we’re going back to the way that we had worked in the past, I think that’s just a mistake, because we opened Pandora’s box. Now you just got to play the hand that you’re dealt, and our class a class double a product and Dallas Fort Worth, like most of the the cities around the country, doing exceptionally well 10% vacancy, potentially less, and most of your class, a class double a product is staying very well least, I attribute that to downsizing. You know, there’s people that were in 30,000 square feet of Class B space, and that same brown brick atrium style surface parking building, and they’re like, you know, half my workforce isn’t coming into the office, the other half comes in three days a week. Instead of leasing 30,000 square feet, let’s just go lease 10,000 square feet in the nicest building in DFW, and it’ll be better for the people that want to come in, it’ll be nicer will enjoy it more, there’ll be more amenities. And we’ll save money, because there’s, we’re going from 30,000 feet to 10,000 square feet. So it’s a win win win all the way around. And we see more and more and more of that. And so you know, that’s why you have the tale of two cities with the the higher end product doing very well. The Class B product, which historically from an ownership standpoint was always considered safe. The reason it was safe was if you were in a class C building and the apart and the economy did well, then you move into a class B, if you’re in a class, a building and the economy did poorly, you moved into a class B, we just don’t see that there’s this huge, huge void huge schism. And I think everybody in the United States is trying to figure out how we accommodate those Class B buildings.

J Darrin Gross  39:19  

Yeah, no. And you mentioned that kind of a couple blocks off the interstate two storey brick with atrium. I mean, that was pretty much that was the move back in the 80s. Where, you know, everybody was going to suburban, kind of the office park as opposed to downtown and, you know, funny halloween blows.

Grant Pruitt  39:39  

If you think about office buildings, I honestly I didn’t think that you could get more amenitized than we already had been with buildings. You know, because it started very slowly. I will put a conference room in the building we’ll put a tenant lounge in the building we’ll put a fitness center in the building and everybody followed suit and now you have golf simulate. Laterz pickleball courts the, the amended zation of these buildings blows my mind. Well, you can do that with bigger buildings, you can’t do that with a 50,000 square foot Class B Building. And that’s from an investor standpoint, that’s where I see the biggest schism, as well, as far as you know, there’s a, there’s a bid ask spread between the buyers and the sellers. And that, you know, you have a seller who, let’s say they have $100, a foot bases in a 50,000, square foot, two story building, I mean, that’s, that’s about right 25,000 foot floor plate, two of them. So they’re in it for, what’s that $25 million 100 bucks a foot, you’re gonna get 30% site coverage on one of those buildings. So that’s 75,000 square feet. For round numbers, let’s just say that it’s, it’s 100,000 square feet. So we’re gonna, I guess, for 50 million, right, we’re at 100,000 square feet, if you just sold it to the dirt for that, you’re looking at 20 bucks a foot 20 bucks, a foot is not sustainable, at this point in time for industrial development. And some of these guys are in them for 234 100 bucks a foot, you know, I’m just picking 100, you have to your there’s going to have to be a reconciliation, that, you know, the value isn’t there, you’re really buying the land value, buy it for the land value, scrape the site, and then put something on there. But that’s if and only you can get the zoning. So that’s why I think everybody’s scratching their head saying, what is this going to look like? How is this going to shake out? What’s going to happen when these loans come due? Because there’s there’s two things, really three things going against them. Number one, the the tastes have changed. Number two, the interest rates aren’t helping them out. And number three is kind of in line with number one, but the workforce is changed. So I don’t know what you do.

J Darrin Gross  42:21  

Yeah, I think that, you know, what you’re saying this, what I’m hearing, you know, everywhere else, and, you know, I drive around Portland, Oregon, you see a lot of the, you know, office buildings, first story, second story are empty. And, you know, if you go in one, it’s like, you can walk along waves before you can see somebody it’s kind of weird,

Grant Pruitt  42:45  

but it’s relative, different product type. And it’s different markets, because they’re it’s also some market specific as well.

J Darrin Gross  42:53  

Yeah, absolutely. And they’re like, yeah, when I say Portland, there’s a lot a lot of pain in the downtown, but the the otter burbs are doing pretty well. And there’s been that migration, you know, I think it’s like I said, it’s kind of the workforce has changed, where people want to be as change the product. And then also the space demand, you know, the requirements they need for the space, like you said, if they had 30, now they’re moving down to 10, they get a nicer space. People come in a couple times a week, as opposed to five days a week. And it’s it is just kind of a change. And I don’t know that it’s all for the better. It’s just different.

Grant Pruitt  43:31  

Different i It’s too early to tell if it’s better or worse.

J Darrin Gross  43:34  

Right. Right. Now, there’s, I mean, there’s definitely some convenience factors. I mean, certainly the commute from, you know, the bedroom to the office is a lot shorter and easier than, you know, getting in traffic with everybody else kind of thing, but the community and the sharing of ideas, and just the, you know, being around people. And and I think there’s some work, that it’s hard to measure when you’re in the space together. And I’m just curious how long it takes before people recognize that that’s, there’s more of a benefit there than than not. And, you know, can you see that grow back? And maybe you won’t, maybe we’ll be all this kind of zoom talk and stuff. But I would think that just that, you know, some sort of a well, I don’t know, it’ll be interesting to see, which is, you know, what, what it evolves into, and we’ll be there when we get there, I guess?

Grant Pruitt  44:29  

Well, we’re hearing from our clients from I mean, even from our own experience, that the biggest challenge is training for workforce that doesn’t require training. The Virtual Office works exceptionally well. It’s really hard to train virtually, because to a certain extent, stent training is a contact sport, and you really got to be, you know, there’s just so much More to be absorbed, that’s just harder to pick up virtually. And so I think that’s, that’s probably the biggest unknown out there is what does it look like? What does it look for the next generation that’s coming up that that, you know, because what do you learn in school that you apply in, in in your job? Very little. And I say that as somebody who has a degree in real estate, very little, you know, this job, and most jobs, you know, we always laugh and say that we’re a blue collar, white collar job, but I think most jobs are and that it’s on the job training, you learn as you go, you make a lot of mistakes, you just try and make fewer mistakes than the guy next to you. And it’s, it’s hard to do that in a virtual environment. And so I’m very keen to see how that plays out long term, as you continue to have new people enter the workforce.

J Darrin Gross  46:07  

Yeah, definitely there will be, you know, I would say probably a decade or two out, we can look back and kind of, you know, tell more of the story. But right now, it is kind of an interesting time, and we will see where it goes. He Grant, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker. And as such, I work with my clients to assess risk and determine what to do with the risk. And there’s three strategies we typically consider, we first look to see if there’s a way we can avoid the risk, when that’s not an option, we’ll look to see if there’s a way we can minimize the risk. And if we cannot avoid, ignore, minimize the risk. And let’s see if we could transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle. And as such, I like to ask my guests, if they can look at their own situation, could be your clients, investors, interest rates, development demand, whatever, however you’d like to identify, and what what you consider to be the biggest risk? And again, for clarification, while I’m an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you Grant Pruitt, what is the BIGGEST RISK?

Grant Pruitt  47:31  

Sure, I’ll give you the micro first and I’ll give you the macro. So from a micro standpoint, with primarily offices in the state of Texas, the biggest risk is the the perceived safety of the cities. As long as the cities in the state of Texas are perceived as relatively safe, we’ll continue to see that inbound migration, the schools have always been an issue. And people always talk about schools. But the minute people don’t feel safe, that’s when you see a flight to other parts of the country where they do perceive that safety. That’s the map the micro, from a macro standpoint, it’s probably going to be the same concern tomorrow, and next year, 10 years from now, 20 years from now, it’s always the lending facilities for me, because I’m in commercial real estate and always quiz people and say, who owns all the real estate in the United States, because the United States is different than some other parts of Europe and so forth. The banks, the banks own the real estate, because they have loans on most of the real estate that’s out there. And when we have hiccups in the lending facilities, that’s where we have real trouble. We saw it in, you know, the 1980s 2008. Anytime that banks fail, anytime we see issues with lending, potentially alternative vehicles that that create more risk? That is a huge concern.

J Darrin Gross  49:17  

Yeah, no doubt the lenders and just the effect that, you know, reaching cars on the market is it’s kind of scary when you, you know, everything’s going one direction and all sudden rate changes. And, and, you know, I’m kind of curious, because in just my experience, and be curious to hear from you what you think, you know, it’s that interim between the rate we were add to the rate we’re going to, that’s the challenge, but once we get to a stability or a stable rate, and people can have figured out how to do business, in that rate environment, then things get back on track. Do you see it that way? Or do you feel like it’s, it’s just, uh, works at this rate, it doesn’t work at the other rate.

Grant Pruitt  50:11  

I think that I think that we got really used to having essentially extremely low interest rates on historical basis for a long, long period of time. And we’ve forgot that interest rates weren’t always at that level. I mean, even not that long ago. You know, they’re, they’re well above that now. But I think about the first house that I bought, and I was pretty pleased, I got a 5% mortgage rate. And when 5%, you know, when we went from people being, you know, threes to five, people, all of a sudden went, Oh, my gosh, I don’t know how we’d ever be able to buy a home. You got to play the hand that you’re dealt. And, you know, I think poker is probably the best way to look at it. Because, you know, all right, the deal your five cards, you know, you’re not married to those five cards, you can trade them in for different cards. And if you don’t like it, fold that hand and go to the next hand, but you just got to keep playing the hand that you’re dealt. And I think that when, you know, Warren Buffett is he’s got some great one liners, but you know, he always talks about when they Zig you zag. And everybody is, is looking one way, and I know he’s gonna do the opposite. You know, he’s the one that you know, he bought, you know, some of the banks that failed in 2008, and asked why he did that. And they ended up being incredibly lucrative endeavors for him. I’m not a huge believer that, you know, you blame it on the interest rates, you blame it on the instability, there’s always something to blame. I think you just got to play the hand that you’re dealt, and you got to be smart, and you got to, you know, put the pencil to the paper and trust what the numbers give you make your decisions based on data, not based on the noise that people talk about? Because I’ll be the first one to tell you, I get people that tell me oh, well, you know, I read this about real estate, and I read that about real estate, and they’ve been doing that my entire career. And they make what I feel are mean, even this morning, very poor real estate decisions based on what they read in the newspaper. And I don’t I don’t see that because I don’t pay attention to that, you know, that’s a that’s somebody who’s got an opinion. And, you know, I’m looking at the data, I’m looking at it the information that’s available to us and trying to make informed decisions. And that’s, that’s part of my, my, you know, my, my passion in life is to help tenants make decisions based on that data. So, yeah, I would agree with you. But I’d also challenge that at the same time.

J Darrin Gross  53:17  

Yeah, I think your summation there, you got to deal with the hands that’s dealt, and also make sure the numbers work. Makes sense. Hey, Grant, where can listeners go if they’d like to learn more or connect with you?

Grant Pruitt  53:31  

You can go to White Box Real Estate.com Or you can shoot us an email at contact at white box realestate.com.

J Darrin Gross  53:40  

Awesome. Grant Pruitt, I can’t say thanks enough for taking the time to talk today. I’ve enjoyed it. Learned a lot. And look forward to doing it again soon.

Grant Pruitt  53:50  

Absolutely. Thank you for having me. 

J Darrin Gross  53:52  

All right. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks, CRE PN Radioo.

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