Episode Transcript:  

  They say in real estate it's location. And some people believe that can apply across the United States while others chose to become experts in a single market. We're gonna dig into that and more on today's episode. Let's get ready to scale.

Hey guys. My name is Jeannette Friedrich, director of Investor Relations here at Blue Lake Capital. Joining me today is Brad Andres. Brad is the co-founder at Northbridge Commercial Real Estate, which is a vertically integrated commercial real estate and advisory firm, hyper-focused on the DFW Metroplex.

He's also the Executive Vice President at Axis Realty Group, which is a firm that provides commercial real estate brokerage services. And in addition to that, he's also the co-founder at Yellow Door Storage, which is a self storage investment firm. So Brad is quite the baller in the real estate scene.

Another fun fact about that is that he was previously the senior VP at first. State Bank before he got into all of this real estate space. And he also currently serves on the board of directors for the Denton Chamber of Commerce and has previously served as a trustee of the Crumb Independent School District and as a city councilman for the City of Crumb.

So very nice and impressive resume right there. Brad has a Bachelor's of fine Arts from BYU as well as a master's in journalism from the University of North Texas. Common to find in real estate where our degrees definitely did not go in the direction we did. Okay, and he's joining us today from Denton, Texas.

So Brad, welcome to the show. 

So great to be on Jeanette. Thanks for having me. 

Yeah, so you, I've forgotten 

half that stuff in the bio there. 

Yeah. You go from fine arts to journalism, to banking. Yeah. And then to setting up your own shop. That's quite the adventure there. 

It's been fun. That's right. 

Nice. Very nice.

So I'm curious to know just the story of how you initially got into real estate. Was it just getting to see it from the lender side, you thought, Hey, I want on the other side of that table, or how did that go down? 

So my undergrad, like you said, a lot of us go we think we're going down one path and end up in real estate.

But my, I was marketing advertising is really what that undergrad was at in, at BYU thinking I was gonna do, I wanted to do product placement. I wanted to work for an ad agency. Long story short, just did never found that right fit there, and so ended up working for a community bank in Texas as their marketing director is where I started my career.

Nice. Really at the bank, I wasn't so much exposed to the lending side initially, but my first. My first real estate purchase, like most a lot of people is my own personal home. So after landing that job, and we had already had a kid before we even finished college, and so it was like let's buy a house, we've got a real job, let's settle down.

And so I remember working with the mortgage guy at the, at the bank, he was there and we're, I was doing my loan application. He was setting everything up and we had a good rapport. Everything was going great. And then one day outta the blue, I got this phone call from. A lady named Kim at a title company, and I'm like she's Hey, Brad, I'm calling to schedule your closing.

I'm like, what are you talking about? I'm working with Phil over at the mortgage company. She's I know, we're gonna close it. I, and I was so confused. I had no idea what she was talking about. I'm like I thought Phil was handling all of this. And so that was my first purchase. Didn't know anything about real estate.

It was 2001. And from there. I had an opportunity about a year later with a friend to invest in a duplex. And that was really the first investment property. And I'll tell you, after a couple of real estate purchases, I was hooked. So really as I was doing the marketing stuff, about five years in, I did the bank sold.

New bank's Hey, we really like you and we think you've got something, but we're good on the marketing side. We've got our own team here. If you wanna stick around, you've got a place in the lending side. So that's where I officially made that transition all along. I had been doing some mostly residential develop, or not development, but investments, so single family duplex kind of stuff.

And but that lending side really got me exposed to the commercial side, which is where I've thrived the last 15 years.

Wow. Fantastic. And we will dig into that too. But before I do I wanted to know why did you decide to hyperfocus on the DFW market? 

I'm from here first of all.

It's like you, you kinda go to where, and it's where I grew up. It's in, in Denton that you've mentioned a couple times. Denton Crumb. We're on the north end of DFW, so that northwest side of the DFW Metroplex. But that's really, I'd say, why.

Decided if I, it was more just about being close to family and friends and kinda where I grew up, so that, that's why we got here initially. But I can tell you why I've stayed. And why. The commercial real estate world makes so much sense for me here and there's lots of great markets across the country for sure.

But for us, we. Texans are very proud of our state. We are. We are indeed, as 

A born and raised Texan, even though I'm transplanted in California, it goes against a lot of Texan rules. Where are you from 

originally? 

Originally? El Paso. And then I lived out. Yeah. And then I also lived out in San Antonio for about 14 years.

Okay. Yeah. So you've still got that Texas pride in here. I do. 

It does not go away. 

Yeah. So but the state really is very favorable for real estate. Low taxes as far as state, now we do have high property taxes, which can be challenging sometimes, but favorable regulation, regulations, it's really a favorable environment to do business.

A deep labor pool. We've got, lots of good opportunity for labor here. And, so we're seeing, and of course from California, we have seen over the last. Really, but it's accelerated in the last five years. A lot of it COVID related, just that the corporate relocations and these employers, these major employers, they're coming and they're not just staying, but they're expanding, and so we're seeing a lot of growth in that way. It's a great logistics hub, lots of. One of the top intermodal and last mile distribution markets in the country.

We've got all the roads, the air covered, rail. It's all kind of converging here. We don't have down in the Houston area, we've got, the ports as well. Not so much in DFW, but, so anyway. Still lots of land too. Lots of ways. That's one other great area thing about this market is, it's still just sprawling out.

And so it's lots of opportunities for growth and that's where we're seeing in particular my area a little bit more on the outskirts of the metroplex. It's still a lot of growth because it's just pushing out and rather than, having to get, I think in a lot of these, really established markets and DFW is established, but where there's not as much land area, right?

Having to get creative and how to reuse some of that, they're just. Kinda go out a little bit further. Yeah, those benefits. 

Yeah. Couldn't agree with you more. As a matter of fact, our most recent acquisition, if anyone is looking to get into the Dallas market is in the DFW area right near right near Addison, is where our most recent acquisition is.

But, I wanna dig a little bit deeper. Given that you're hyperfocused on this market. It, I'm sure that you are able to be sensitive to any type of shifts in the data, so I wanna know, what kind of early data points or on the ground signals tell you if one of these sub-markets is ready to turn, and how do you decide whether to proceed or pass given your deep experience specifically in that market?

Yeah I, and I didn't hit on this, but it's the, this area also, asset performance, even during national slowdowns, the cap rates hold, they seem to hold a little firmer here than some other areas because there is this sustained demand, and certainly watch for. That kind of, cap rate. But leasing velocity, we're watching what's happening in any given asset class, and we do primarily, and I know we'll touch on this, we do a lot of self storage. We're also in our particular submarket, there's not enough depth to be just say I specialize in any one asset class, but primarily self storage industrial.

We've done our share of office and retail as well. But watching those, the leasing velocity, and what the. What absorption rates look like, occupancy trends along those same lines as I mentioned, cap rates. And then one that affects all of us, in interest rates and some asset classes.

Classes are a little more sensitive to the interest rate environment than others, but. Those are I'd say mostly the main things we're looking for. The other thing we run into quite a bit in this area, and again, talking about how it expands out is looking at pricing versus replacement cost.



So always keeping a good pulse on what things cost to build new, help us. And especially as well, both as best investors and brokers, but really help us guide some of those decisions on where, what we should be paying for things and whether it's better to go try and buy something or build something new.

Yeah. And you bring up an interesting point because I feel like in the market today that's questionable. That's really questionable when we're looking at the potential impacts of tariffs. The potential impact to the labor force with immigration policies. That's it's more challenging now than at any time that I've been in real estate to be able to really assess those, potential cost.

And so how are you looking at it when you're trying to, back of the envelope? Replacement cost. 

It's not easy, is it? It's a moving target and we've been saying for the last several years, something has to give, we, we either need some relief from interest rates or construction costs.

In, in the storage world, our businesses largely dependent on people moving. And those, again, the housing the interest rate and the housing environment hurts that, but, we just have a handful of contractors that we stay in really close contact with, and so we're able to pick their brain on somewhat regular basis.

What are you seeing in pricing? Is it changing? And so we just try and stay, as abreast on that as possible. 

Yeah. It's about all we can do really. Yeah. All now I wanna go back a little bit because I wanted to dig in a little bit further to when you were a lender. So I'm just curious, after, spending years approving other people's deals, how do you structure your own now and what kind of discipline did you learn from those lending days that have changed the way either raise capital or underwrite transactions in today's higher interest rate environment?

Yeah. So one of the things any good lender commercial real estate lender in particular, will, will learn and understand is debt service coverage ratios, right? So that is that, that, in our margin, cost of cost of funds as far as the yield I should say.

And so we're starting to, we just always start there what is. What's the debt service gonna look like? What's our debt service coverage gonna look like and what's the down payment gonna be required? And so we're just backing in. In my old banking days, we used to underwrite everything based on a 15 year amortization.

And if you put the right amount down in those days it was 20, 25% down. And I'm talking like this is a long time ago, but I haven't been a full-time lender for 10 years. 15, let's say 15 years ago when I was working in that in, in full-time, it was. Put 20, 25% down. The, if the, based on the interest rates at the time, the deal should cash flow and cover your debt service one and a quarter times based on a 15 year amortization.

Not to say we wouldn't offer a 20 or maybe 25 year amortization in some cases, but that was our kind of, that was gold standard. And we really judge most deals off that. Now you look at trying to do that today and it. It just never worked. So we okay, I've backed I started when I was investing on my own.

That's the same that what the banks are looking for. That's what I'm gonna do. That's a safe way to, to play this. But it was just too strenuous. You couldn't get a deal done. So now we at least look at based on the actual amortization that the banks could offer, the 20 or 25 year. No, but really just the same way that a lender's gonna look at it.

What is the debt service coverage? And if it's one and a quarter, 1, 2, 1 3 in that range, that's gonna be our bare minimum and we're gonna start feeling comfortable and that's going to, you. It'll, it can be a circular error sometimes 'cause Okay, if we put more down, we can get that.

If we put more down, what's the, the IRR on the deal and the multiple. And so our investors are typically, most of our we talk to investors mostly in terms of multiple, especially environmental. A lot of them year, several years ago, were thinking IRR related, but it's more multiple driven now.

They're, so many things can move that IRR that you can play with, time. But if you can tell me you can two x my dollars in three to five years, that's what I'm, that's what I'm looking for. That's what I'm gonna key in on.

Yeah. I have an investor that calls it the irrelevant rate of return because there's so many variables that can be.

To manipulate that number. Yeah, absolutely. Alright. But the 

banking was a great background. I tell you, it's just, it was so amazing to me to look at different people that were, doing the SA in the same industry. It might've been real estate or might've been a commercial HVAC company or whatever.

And two guys in the same industry. One of 'em just wildly successful, making handover fists and the others just barely scraping by kind of paycheck to paycheck. And the only difference was the operator and the way that they were. Handling their business. They were in the same market, in the same industry, same segment.

And the difference was the way that they operated. So it taught me a lot about just how important operations are and, so that, that's something we've focused a lot on is how, just doing, trying to do a very good job of operating our properties 

And that's great because you just opened the door to my next question and Brad, you didn't even know it, right?

So I wanted to talk about vertical integration. Now you all control everything from management to development. So I wanna know if you can share an example of a project where being able to own that entire. Stack either helped to rescue a deal that was about to stall or maybe unlocked returns that a third party model would've otherwise missed.

So I'm curious to know when, let's dig into those operations and how do you tweak it to really maximize the overall returns? 

Okay. Yeah, didn't know we were stepping into that, but good segue. But they, I think it's a double-edged sword on the being vertically integrated.

Again, we do enough third party services that sometimes some of our clients on that front will say now wait a second. Who are we, are you competing against us? Or how's this working? And so we have to just really disclose all that and be careful how we handle that.

But at the end of the day, we're better brokers. Because we do property management and we manage and underwrite and develop our own properties, we're able to assist those clients, better than we would if we were just straight brokers. So I think most of our clients find real value in the fact that whether we're, they're hiring us for all these things or not, that we have that breadth of knowledge but.

Man, having, and we've hired plenty of third party managers, especially in our storage. When we were starting out, we hired third. We hired that out and we saw what was really good and maybe some things that we didn't love about our property manager in those cases. And but now we're in total control of these.

And again, for the better. For better or worse. But, it gives us a lot of clarity, a lot of control. We, when we manage our own properties, we get to be nimble in real time, see what's working. And I'll give you an example of a property that we're managing that as self storage facility.

The velocity's been down in general, the leasing de velocity's been down in generals in general in self storage. And I mentioned that. And it's a lot of, that's because not enough people are moving, right? We're having to find really creative ways. We're, where we're the owner and the manager.

It doesn't take long to tell the, the, for the owner, asset manager to tell the property manager, let's tweak pricing and let's be fo more focused on cutting rates and getting it filled up. Knowing that we can manage that that revenue, down. If we can get 'em in right now, in this environment, it's more about getting people to move in and do rate management and look to build that revenue a little bit later on. If you're trying to stay firm on your pricing right now you're vacant, so you might as well get some amount of revenue and do a really good job of, in customer service, treating those people well and doing some slow methodical rate management over the time.

But, it gives us, it's more than just cost saving. I think at the end of the day we still pay ourselves. Kind of market rates on those things, but we're, we're able to have a staff of people in our office that are able then to do a lot more things for us, and again, just some of those creative things that you might not expect your property manager to do. Really getting out there and pounding the pavement because we've got a staff of people that we're, we're not, we don't, property management's not. In my experience, I don't know about anybody else that's listening or that, that does this, but we don't make, it's a loss leader.

We don't make a lot of money on it. Every time you kinda get enough properties where you think we might start making some money, you really need to hire another person. 

Yep. 

But it does give us a robust staff to work from and do some more creative boots on the ground things.

Yeah. Yeah, for sure. Interesting. All right. And then before we jump into the lightning round questions, I do wanna dig into the self storage a little bit further because a lot of a lot of people have a lot of interest in that, so I'm just curious to know. Where do you think that there's potential outsized returns in that, you just mentioned and it's smart, the idea of being able to build up occupancy and then focus on a rate strategy, down the road once you've secured that occupancy.

But I'm curious to know, if there's any other common inefficiencies that you see where people are leaving a lot of money on the table that they could otherwise, maybe turn that into profit. 

Sure. This, so storage and car washes, there's maybe a few others. There's a few that the SBA with you.

If any of your listeners, go borrow SBA dollars for real estate. That those are available, like in an owner occupied, Hey, I own my building, I need an SBAA 5 0 4 loan. There's a couple of what I'd call investment, type asset classes that also qualify as owner occupied Self storage is one of them.

Interesting. 

It's as much a, it's a business. You're running a business as much as you own real estate and to say, is this a real estate player or is this a business? It's both. It's very heavy, kind of business operations, and so again, you can think about it as a property manager, but it's so much more than that.

There's just, what other property asset class. There's very few where you're thinking about needing to be ranked high in your SEO searches and those kinds of things. It's a different play, and so it's but it gives a lot of opportunity to do that really well and be better than the competition.

And so it's not it is a commodity, but again, you've got a lot of opportunities to to have better customer service or rank higher in your searches? We are doing a lot and thinking a lot about ways to automate, management, leasing, customer service really trying to be tech forward as much as possible on that stuff.

Yeah. Yeah. And interesting, I, I didn't have this question originally prepared, but I can't help myself given that you have a marketing background as I oversee marketing for us as well. So I'm curious to know and this may be of great interest, to our listeners that, are either in senior leadership or our business owners themself about where you.

See the future going when it comes to search term ranking and things along those lines. One of the things that. I've been hyperfocused on is really getting ahead of the AI wave as much as possible and really actively, working to train LLMs to, populate information about our company in their answers and optimizing our website to be able to be easily scrubbed by LLMs.

And to me, in my opinion, I really. See the game changing, SEO optimization, was yester years and we're moving into this new, very interesting space of needing to dominate, LLM recommendations, and suggestions. And so I'm just curious to know, what your thoughts are on that, and if you've taken any proactive steps to try to catch this wave as it's starting to swell, right above our heads.

We're thinking and talking a lot about ai. In fact maybe I'll have to just put a plugin for our, what we're calling weeks ahead, AI podcast. And so we've got a podcast going that just been recording, and we'll be releasing those soon. But weeks ahead, ai. We are thinking and talking a lot about ai and I think you're, you're spot on, Jeanette, that the SEO thing, it's still there.

It still matters, but it very well, at some point in the very near future, it's not going to, it'll be totally different that might be a year, that might be three years before things totally shift over to this kind of new way of doing it. And I think it's incumbent on all of us that want to really stand out.

We need to be really proficient. We need to be thought leaders. I think what you are doing is part of it. This podcast, for example. So the more like real and again, you can get AI to help you, but blog posts on your website, it's old school a little bit, to demonstrate that you really are.

An expert in your field that you're a thought leader. And so that can be through social media channel. That can be on your website, it can be a podcast. But that's where I think that the L LLMs are gonna recognize that those real experts, and you're gonna point people in our direction based on doing some of these things.

And they're sometimes a little bit harder and take more time than the old school of just trying to. Trying to crack the code on the Google search,

yeah indeed. It's it'll be an interesting journey ahead of us, that's for sure. Absolutely. So before I let you go though, I do wanna ask you what we call the lightning round questions, which are just my questions that I ask all of the guests on the show.

So are you ready? 

I hope so. Let's see what you got. This is all fast money. Family Feud style, is it? 

No, but that's a great idea. Maybe I'll do that next season. Let's do that. 

Okay. What do you got for me? That 

would be really fun. All right, so I don't know how in the world you have extra time given all of the different companies that you're helping to run, but what do you actually do for fun when you're not working?

Oh boy, now it's ai. I'm just thinking and breathing and talking ai, so that's a lot of fun. We have three kids. They're all grown. 24, 22, and 20-year-old, so they we're kinda woo-hoo. Yeah, it's been great. It's been quite a transition. We could talk forever about parenting adult kids.

That's a, oh yeah, a new chapter, an interesting one. But it gives us a lot of opportunity to travel, so we really enjoy traveling. I enjoy playing golf. Don't play quite as much as I used to. And I think I'm just really in this kind of hitting my second stride on some of these business opportunities that just really, I just enjoy it.

That's my hobby. 

Yeah, I get it. I get it completely. All right. What is something interesting about you that most people don't know? 

Ooh. I'm, I, now I've know how to play Piano Man on the harmonica. I can't play the piano, but I play the harmonica piece oh, cool. I've always wanted to be on the stage, somehow or another, I did some one act plays as a kid, in high school.

That kinda stuff. Never really got my shot on the stage, but we're restoring, we're in the process of restoring the fine arts. It's the Fine Arts Theater is what it's called. It's really, it was an old movie theater that we're gonna convert to a live performance, live music, live performance center, and movies here on the Denton Square.

And so anyway, maybe I'll get my shot to be on the stage. That's my passion. 

Very cool. Very cool. Now, you mentioned that you actually are in the process of getting ready to, I believe, release a podcast, so this is a great question for you to put in another plug for that if you like. Okay. But what podcast or book would you recommend that investors can check out if they want to say, learn more about?

Either you know how to structure deals or maybe self storage or, multifamily or, whatever you believe is worth people's time and attention right now. What would you suggest, either podcast or book-wise? 

I, the I'm just, I just recommended the book to a friend and I've drawn a blank.

Help me out. The Napoleon Hill book. Come on. Oh. Ah. 

Yes, I know that one. 

I'm we're our listeners. Your listeners are gonna be like, how do you not know what you're saying? I know. 

Oh, I think and Grow Rich, I believe, think and 

Grow Rich just reread that and recommended that. And so that's an old school one.

And and, but I like some of those old ones. I think it's got a lot of applications, but that grit, that grind, I just love that. So anybody that's talking just real gritty grindy, nick Huber. On, on, he's on LinkedIn and x strip mall guy. He's retail, both, both X and LinkedIn.

But he's a great follow, it's not my asset class, but a lot of his principles apply and so I love those kinda guys. Anybody that's talking. Talking really, just really grinding it out, getting your hands dirty and making things work. I, that's my philosophy, so I like 

that.

Yep. Love it. Love it. All right, good. And then, one of the things that we also like to talk about on the show is, yeah, we all wanna make money. Yes, we wanna have good returns. But the point the point of all of it is that ideally we wanna be able to build and live extraordinary lives. And so what is your advice for someone that's focused on doing that?

I've got a very strong faith in God, and so I, I try and take an eternal perspective when I'm, anything I'm doing that everything we're doing is, as much as it feels like it's so critical, so important in the grand scheme of things, it's not that critical, not that important. So let's have a little fun with it.

But I think just trying to keep that, more, that bigger picture, treating people the right way. Customers. That could be tenants, landlords, clients that you're dealing with. Certainly even, in the brokerage world we it's a unique business because we have to cooperate with our competition, so they're our frenemies, but treating people the right way.

And so just stepping back and saying, none of this matters that much. It does, but let's take a bigger picture of it and what I call the eternal perspective. 

Very good. Very good. All right, and then last but not least, Brad, if folks wanna get in touch with you, how can they find you?

LinkedIn's probably the best way right now, so check me out. Brad Andres on LinkedIn there. Love to connect with anybody that any of your listeners or your friends, so that's the best way I'd say. 

All right, perfect. Brad, this has been very insightful, fun. I enjoyed it. Thank you so much for taking some time to share your experience and thoughts with us.

Thank you, Jeanette. Appreciate you having me on, and it has been fun. 

Good. And for those of you that invested your time with us today, thank you. Please don't forget to leave us some comments. Let us know what else you'd like to dig into next. And in the meantime, be bold, be extraordinary, and keep moving forward.

Ready to Scale is brought to you by Blue Lake Capital, where we hunt down the best multi-family investment opportunities that we can find and invite investors to join in with us. We target class B value, add multi-family properties across the Sunbelt. Our CEO Ellie Perlman, invest a substantial amount of capital into every deal.

This means our interests are aligned with yours. If you're an accredited investor looking to expand your portfolio and diversify sponsors, be sure to visit us@bluelakecapital.com. Blue Lake Capital, be bold, be extraordinary, and keep moving forward.