🗞️ News & Moves 🏠

JPMorgan’s Back to Office Plan (WSJ)

JPMorgan just made its stance crystal clear: no more hybrid limbo.

Starting March, most of its 300,000 employees will clock in full-time at the office.

Only teams with easily measurable remote productivity might keep their hybrid setup. Everyone else?

Back to desk life.

What’s the real play here?

Leadership says it’s about better collaboration and running the company at full tilt.

This move?

A big test for the talent market.

Will stricter office mandates drive productivity – or push top talent toward more flexible employers?

Will it work? time will tell.

🚨 The Fed Pulse 🚨

The labor market just made a splash, but it’s not all good news.

December's nonfarm payrolls surged by 256,000 jobs, well above expectations.

The unemployment rate dropped to 4.1%.

On the surface, that sounds great, but the market didn’t love it.

Stocks sank, and Treasury yields jumped.

Why? A strong labor market means the Fed has less urgency to cut rates.

Big picture?

The labor market is still tight.

As for the Fed, their December forecast showed just 50 basis points of rate cuts this year.

This week's reports make even that look ambitious.

The real story?

Inflation remains the Fed’s top priority, not jobs.

Until inflation cools further, don’t expect any big moves.

Bottom line: A strong labor market may slow rate cuts, but inflation is still the main game.

DEEP DIVE

I’m already taking heat from some folks for revealing this information here.

But you know what?

I don’t care.

In the next five minutes, I’m going to share some amazing takeaways about small-bay industrial properties from a deal we just sold.

By the end of this email, you’ll understand exactly why I believe small-bay industrial is the way to go for the next 24 months.

Last Thursday, we sold a 30,000 sq. ft. small-bay industrial property (click for aerial YouTube video) for $5,050,000.

Earlier this year, I wrote about this deal (Value Builder).

Recap

📌 Acquisition: We purchased this 30,000 sq. ft. building on a 2.15-acre lot in Fort Myers, FL, for $2.7M ($90/sq. ft.) in August 2023.

📌 Strategy: The property was fully leased to 12 tenants under month-to-month gross leases, with rents between $8 and $9/sq. ft.

Our plan?

Convert the leases to triple net (NNN) and boost income through few tenants replacement and light improvements.

📌 Stabilization: We increased to $369K in 6 months. Total hold was 18 months.

📌 Exit: Underwrote at 8% cap with a $4.6M valuation, and we sold at $5.05M at a 7.3% cap.

Strategy Shift

➡️ Insurance Costs: At $3/sq. ft., insurance in Florida was ten times higher than our Midwest properties ($0.25–$0.30/sq. ft.).

➡️ High Price Per Foot: Coming from the Midwest, where value-add deals often range between $20–$50/sq. ft., buying at $90/sq. ft. was pushing my comfort zone.

➡️ Hurricanes: In 12 months, we had Hurricanes Helene and Milton.

Luckily, there was no major damage.

Still, these events shifted our strategy.

We planned to hold Florida properties for 5–10 years. Then, we would sell a $100M+ portfolio to institutional buyers.

Yet, the hurricane risk makes long-term big concentration in Florida outside my comfort zone.

Instead, we’ll focus on quick value-add cycles (1–2 years), keeping exposure under a few properties at any time.

Small Bay Pros

1️⃣ High Demand: 

There’s high demand for small-bay industrial spaces, even in secondary and tertiary markets.

Also leasing is easy if you do it in house.

With effective marketing, it’s possible to generate 10-20 tours per month and sign five or more leases monthly per facility.

2️⃣ Gross Leases: 

Many properties in this sector have gross leases, which is perfect opportunity to convert them to NNN.

3️⃣ Light Renovations: 

Improvements are usually minimal: sealing asphalt, upgrading to LED lights, and minor roof repairs.

The Key Takeaway: Speed > Price Per Foot

The key lesson from this deal is this: speed trumps price per foot in value-add deals.

Here’s a quick napkin calculation:

In a $100/sq. ft. market, a vacant property might cost you $10–$12/sq. ft. annually in carrying costs (debt, taxes, insurance, and CAM).

If your profit margin is $40/sq. ft. and you take four years to stabilize, you might spend all your profit.

Yet, even a $20/sq. ft. margin on a deal completed in six months is still a great deal.

I hope this sinks in.

Partnering with Brokers

We often partner with brokers who bring deals or lease up our properties.

For some, we add an extra incentive: phantom equity, a profit-sharing arrangement tied to cash flow and sale proceeds, on top of their regular commissions.

Here’s why: if a broker can lease a facility in 3 months instead of 12, for us, costing an additional $5/sq. ft. in profit-sharing and marketing is still a great deal.

We don't have a standard offer; it's handled on a case-by-case basis.

But for this deal, we proposed 3-5% phantom equity. It was contingent on hitting specific NOI targets by a deadline.

Why Small Bay Industrial?

Small-bay industrial is on the cusp of major momentum.

Over the past year, I've seen a surge of interest in this sector, with podcasts, online forums, and conversations all buzzing about it.

It's the same movie I saw with housing 10 years ago, followed by multifamily syndications and then self-storage.

Here's my prediction: In the next 24 months, you can still find small bay deals off the market with minimal competition, letting you deal directly with the seller.

After that, institutional buyers will crowd the market, making deals harder to find and margins tighter.

The time to act is now.

If you're working on a small-bay value add deal and you want to sell or partner up, please hit reply.

I personally read every response to this email.

Takeaways

📍Small bay is ready to reach new heights before big institutional money gets in. My prediction is 24 months.

📍 Speed matters most in terms of value add, not price per pound.

📍 You can lower the risk of natural disasters affecting your portfolio by reducing how long you hold onto it and how much you concentrate in that high-risk area.

As long as you can handle the risk, go for it.

That’s a wrap for today!

Be Well!

Till next Sunday @ 9:07 am.