Today’s guest is Grant Pruitt.
Grant has over 18 years of experience in commercial real estate brokerages and has collaborated with top global brands like CapitalOne, UBS, NEC and was able to transact worth $800 Million of real estate transactions.
Show summary:
In this episode Grant Pruitt, co-founder and president of Whitebox Real Estate, discusses the growth of his company and the future of commercial real estate. He shares his insights on the changing dynamics of office and industrial real estate markets, attributing the company’s success to their clients and dedicated team. Pruitt also discusses the overbuilding of office space and consolidation in the multifamily sector. He provides valuable advice on staying in tune with market trends and sticking to fundamental principles in real estate investing.
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Intro [00:00:00]
The growth of Whitebox Real Estate [00:01:01]
Opportunity in the commercial real estate market [00:02:50]
The state of the office space market [00:07:03]
The boom in population and headquarters relocations [00:11:24]
The potential for repurposing class B suburban assets [00:13:34]
The growth of industrial real estate due to e-commerce [00:16:30]
The overbuilt office space [00:22:27]
Sticking to fundamentals [00:23:06]
Closing [00:23:42]
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Connect with Grant:
Linkedin: https://www.linkedin.com/company/whitebox-real-estate-llc/ https://www.linkedin.com/in/grantpruitt/
Facebook: https://www.facebook.com/WhiteboxRealEstate/
Twitter: https://twitter.com/WhiteboxRE
Instagram: https://www.instagram.com/whiteboxre/
Connect with Sam:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
Facebook: https://www.facebook.com/HowtoscaleCRE/
LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/
Email me → sam@brickeninvestmentgroup.com
SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson
Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234
Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f
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Want to read the full show notes of the episode? Check it out below:
Grant Pruitt ([00:00:00]) – Five years ago, all the headlines were retail is dead. There is no retail. Shopping malls are going by the wayside, and we’re never going to have shopping malls ever again. And there’s all these dead malls that nobody wants. But you know what? People have figured out ways to repurpose them, to knock them down and build industrial on them, to renovate them, to build experiential retail. And that is completely changed. The, the, the, the talking points. And that’s what’s going to happen with office. I just don’t know what it’s going to look like.
Intro ([00:00:34]) – Welcome to the how to scale commercial real estate show. Whether you are an active or passive investor, we’ll teach you how to scale your real estate investing business into something big.
Sam Wilson ([00:00:47]) – Grant Pruitt, who is the co-founder and president of Whitebox Real Estate, has over 18 years of experience in commercial real estate brokerage. He’s also transacted on over $1 billion worth of real estate transactions. Grant, welcome to the show.
Grant Pruitt ([00:01:01]) – Thank you for having me.
Sam Wilson ([00:01:02]) – Absolutely. The pleasure is mine. Grant. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now? And how did you get there?
Grant Pruitt ([00:01:13]) – That’s not 90s, but I’ll keep it to that. I started working for my father in San Antonio, who’s also in commercial real estate. Broker, developer, owner. I never wanted to get into commercial real estate, but it was literally the only thing I was good at when I went to college. I, um, I thought it was a good way to make money on the side. Turned out that it ended up being a career. I saw an opportunity in in the markets, and I ended up starting Whitebox Real Estate seven and a half years ago. So that’s where I am. That’s where I got to be. And in the future, I want to continue to grow it and we want to be in, in, you know, at least by the year 2030.
Grant Pruitt ([00:01:55]) – I want to be in the in seven markets around the United States.
Sam Wilson ([00:01:59]) – That is amazing. Seven and a half years ago, you launched this firm of yours. And if I, if I got this right off, off air, you said you guys are in Dallas, you’re in Fort Worth, you’re in Houston and you’re in DC and Austin.
Grant Pruitt ([00:02:13]) – We got a little office in Austin, too, in Austin.
Sam Wilson ([00:02:15]) – I mean, that’s that’s a lot of growth in a very short period of time.
Grant Pruitt ([00:02:21]) – We’ve been very fortunate. We made the Inc 5000 list this year. You know, it’s can’t do it without our clients. And so I really owe it to them and the people of this company for sure.
Sam Wilson ([00:02:32]) – No, absolutely. Though I think it also takes some vision and some stuff on the leadership side to even see the opportunity, which is one of the things that you mentioned. You said you saw an opportunity. I guess it’s seven and a half years ago. What what was the opportunity and why was that the time to take advantage of it?
Grant Pruitt ([00:02:50]) – Well, in the commercial real estate world, there was a lot of consolidation and there was a real change in the business model as I saw it, and that the consolidation ultimately was to take many of these companies public, say ten, 12 years ago, you had a limited number of publicly traded real estate companies, specifically on the the office in the industrial side.
Grant Pruitt ([00:03:17]) – On the brokerage side, Wall Street doesn’t jive with the brokerage business as well as as as privately held companies do, or people that that are involved in privately held companies. And they started getting out of the idea of working with middle market clients, some fortune 200 clients, some institutional clients. And while there was and still continues to be a great appetite to work with very large institutional groups, everybody who wasn’t that they couldn’t sell 4 or 5 different service lines was kind of left out there hanging. So I saw that as an opportunity for us to go out and take and seize that niche.
Sam Wilson ([00:04:10]) – Right. So if I’m hearing you right, there’s Wall Street and you’re saying that that if they weren’t of a certain size, Wall Street wasn’t interested in it. I said, look, you know, I see an opportunity to start our own brokerage that really is going to serve us the things that maybe they aren’t interested in, and there’s plenty there for us to take.
Grant Pruitt ([00:04:26]) – Yeah, all my clients were in in still continue to be I mean, some of them are publicly traded, but for the most part they’re going to be some fortune 200, some fortune 500.
Grant Pruitt ([00:04:37]) – You know, they’re going to be good large middle market businesses. And if you look at what is defined as a middle market business, you know, you can talk to any M&A guy and they’re talking about five, six, $7 billion businesses being in that middle market space. Because when you look at the, you know, the big guys, you know, you’re talking about at this point, $1 trillion valuation on Google and Amazon and Tesla. And there’s a lot there’s a lot to be serviced that feeds a lot of mouths. It’s a lot of bulk. It’s a lot of volume that, you know, a boutique like us, we’re not really cut out to handle. But if they have 300 locations across the United States or if they’re looking to deploy, you know, capital into real estate assets, we’re a great conduit for that. That’s a great client for us. And, you know, we don’t have to have all their business. We just need a little bit of it.
Sam Wilson ([00:05:33]) – Got it.
Sam Wilson ([00:05:33]) – That yeah absolutely. Absolutely. And when you’re when you’re of that size a little bit goes certainly a long way. That’s so what was what was the first asset class you really focused on. And how did you present and get your kind of foot in the door to present that then? To those. Uh, companies.
Grant Pruitt ([00:05:51]) – Uh, I laugh because when you start a business and you start it from scratch, you’re looking for anybody that will work with you. Sure. If if, if if they’ll work with you. That’s the ideal client. And fortunately, it happened to be in the industrial space. So it was a warehouse user. That was the first client that I worked with. But quite frankly, if it would have been, you know, if it would have been triple net lease buildings or retail or multifamily or just about anything that we could have transacted on, that probably would have been our first client and we probably would have been focused on that. But fortunately, it landed in my sweet spot in the office in the industrial space.
Sam Wilson ([00:06:37]) – Man, that’s that’s really cool. Yeah, I love that. But let’s talk about office space. I mean, that’s kind of one of those things right now. That is it’s the dog everybody’s kicking and I bet you’ve got some insights that would say one while it’s while it’s still why may be a good investment now and then maybe if you can give us a little insight into where you think office is heading. Obviously it’s local. I would love to hear kind of what you’re seeing in your corner of the market.
Grant Pruitt ([00:07:03]) – Absolutely. So it’s it’s a really it’s it’s funny because we see it on two fronts. You know, we’re working with the, the the tenant and the user. We’re also working with the buyer and the investor and the. Tin it, and the user market is much more active than what people think it is. And I understand why they, they, they feel that way. And then when we talk about that from an investor standpoint, um, there’s always a little bit of a credibility check when, when we’re saying that we’re seeing that activity.
Grant Pruitt ([00:07:47]) – Um, what we really see, and I think you see this across a lot of markets in the country for the office space, is you have a tale of two cities. You have your class A, class A, um, you know, very well located, highly amenities, desirable product that does exceptionally well. And the vacancy rates are very often sub 10%. And then you have your class B and under assets that are 2,530% vacant, sometimes more than that. And so it’s it changes my market. And I’ll, I’ll point that out as well. And that, you know, I was talking to a buddy of mine in Chicago. And in Chicago he said, well, you know, it’s all the class that’s in the suburban environment that people are considering and want to be in. I said, well, it’s really what I feel is the opposite of the market that I’m in. It’s the class B urban assets that have the ability to be reconfigured, that have some sort of, you know, re adaptive use that you can retrofit the building as that are more desirable.
Grant Pruitt ([00:09:01]) – You know, in this particular market, if you’re 3 or 4 straight, 3 or 4 streets off the main drag. And in this market we have a lot of freeways. So if you’re 3 or 4 streets off an interstate or a freeway and you know, it’s a 1980s, three story, two story atrium building, that’s surface parking, that’s probably brown brick. That’s a really, really, really tough building to own. And that’s going to be a difficult building to to operate. And I think that’s the great unknown as to what that looks like moving forward and how we work with those assets moving forward. If you have the class B asset that’s in an urban environment, we do see a lot of change in use to hotels, multifamily, mixed use development. You know, I’ve even been seeing people have been talking about I haven’t seen in this market, but probably will as soon as we get done here. You know, even doing urban farming in some of these class B assets that are out there.
Grant Pruitt ([00:10:08]) – So I think that you’re going to see a lot of redemptive. Reuse type projects. But, you know, as as long as it’s well located, it’s a class asset. It’s doing exceptionally well. And I’ll tell you the driver for that, we’ve had a lot of, you know, historically speaking, and this really is buck the norm. Historically speaking, the class B asset has been the safest asset to invest in. The idea was that when the market went down, the businesses were looking at ways to cut costs. So the people that were or the tenants that were using class A space would go to a class B asset to save money. So it stayed full. When the market did well, they moved out to a class asset, and the people that were in a class C asset wanted to upgrade their space, and so they moved into a class B asset. So it more or less was recession proof and it always stayed leased. Fast forward to today. The tastes have change, the workweeks have changed, and what we see is if they have 30,000ft in a class B asset that has, you know, 40% utilization, 50% utilization, and on Mondays and on Fridays it’s not being used.
Grant Pruitt ([00:11:24]) – They just say, forget it. We’re going to go to a class asset. We’re going to take 10,000ft². The people that want to come work here, great. They can work here. The people that don’t want to work here and want to work from home, great. That’s fine. And by going from 30,000 to 10,000, they’re going to a nicer building. But they’re cutting their rent. And so it keeps those class A class assets filled. The other thing to keep in mind, and I speak to this from a local standpoint, is in-migration and and headquarters relocations. So one of the the guy that runs my industrial group here in Dallas has a great analogy for for In-migration to DFW. And he says, look, every day a 747 comes in lands at DFW airport and all the people get off, but they never leave. And that happens 365 days a year where you keep having these 747 land and they get off, but they never, ever leave. And so that’s how much of a population boom we’re seeing.
Grant Pruitt ([00:12:30]) – And in addition to that, we’re still seeing very significant headquarters relocating to this particular market. So I always talk about Toyota. Toyota moved here from Torrance, California. They announced it in 2014. They moved in 2016. They bought 4000 jobs. But it wasn’t the 4000 jobs that Toyota brought. It was all the other jobs that came with Toyota to service Toyota. If you go to Plano and Frisco on the northern end of the metroplex, not so far north at this point, but at that point very far north, they built that market. They built a city with all the companies that went there to service them. And I tell people that that was 4000 jobs. I can look out my window and I can see Goldman Sachs new headquarters going in. They’re bringing 5000 new jobs. And if I look maybe with binoculars, not too far in Irving is Wells Fargo. That’s 3000 new jobs. So that’s 8000 new jobs. That’s twice what we saw with Toyota that have yet to come and and and take residence here.
Grant Pruitt ([00:13:34]) – And that completely is going to continue to change the dynamic. So, you know, from an investor standpoint, you always talk about location, location, location. Well where’s the population growth? Where are the companies moving to, what businesses are going to need other businesses to come service them? And then what are the asset classes that are still desirable? Now I’ll back up a little bit and I will I’ll tell you and everybody else that I talked to had this conversation with an institutional family office that does real estate investing last night. I don’t know what’s going to happen with these class B suburban assets. Something will I don’t know what’s going to make the most sense. Whoever figures it out is going to make a lot of money. I just don’t know what it is. And from a historical context, I’ll give you an example of that. It doesn’t take that it’s not that hard to think. Back five years ago, all the headlines were retail is dead. There is no retail. Shopping malls are going by the wayside, and we’re never going to have shopping malls ever again.
Grant Pruitt ([00:14:36]) – And there’s all these dead malls that nobody wants. But you know what? People have figured out ways to repurpose them, to knock them down and build industrial on them, to renovate them, to build experiential retail. And that is completely changed. The, the, the, the talking points. And that’s what’s going to happen with office. I just don’t know what it’s going to look like.
Sam Wilson ([00:15:02]) – Yeah, I think that’s a great point. And that’s um, it is interesting to see, I mean, shoot here and here in the Memphis market. I was just and again, I’m not in the office space. I don’t have any investments in office. But even just here in the Memphis market, talking about that class B kind of asset, that was I was taking one of my daughters to the doctor here a couple of weeks ago, and I was driving by, and it’s a class B late 80s build, that same brick build. You’re talking about nobody. I mean, this entire campus completely vacant, like, I mean, if I used to be in the single family foreclosure space, I’m like, this just looks like one massive 50 acre foreclosure.
Sam Wilson ([00:15:40]) – Like, what in the world is. It looked like a nice building. Like if it were maintained and taken care of at some point, the investor probably just said, city. You can have it. I mean, I don’t know what happened, what is happening with that, but there is a gold mine sitting there when someone figures out what to do with it. That’s right. That’s that’s really, really wild. I love and thank you for taking the time to break that down, because I’ve had, you know, several different people talk about office and it is either, you know, you’ll look down upon, but you’ve given some real clear insight into what makes still a very compelling office investment. And it sounds like a couple of things. One is market dependent, obviously, but then type of asset within that market that, you know, people are still looking for. So, you know, come to you and check out check out what you guys have going on there in the Dallas Fort in Fort Worth markets to see what what opportunities still are out there in the office space.
Sam Wilson ([00:16:30]) – I think that’s really, really fascinating. We’ve seen kind of that on the on the inverse of that though, you know, and you said you cut your teeth on the industrial side. I mean, industrial has just been off the chain for an untold amount of time. Where has that going?
Grant Pruitt ([00:16:45]) – So I also think that some of that has to do with being market specific. And we are seeing, you know, we saw unprecedented demand for three years and it is quelling okay, I think it’s going to continue to be strong. But take a market like Charlotte, they were seeing 13 to 15% annual rent growth that it’s it’s unsustainable to have that. And our market we’ve been seeing 10% rent growth. And when I tell people that it’s quelling I go, well we’re going to see 3 to 4% rent growth, which is extremely good for us because this is a market that, you know, there’s some markets like east, east, east of Dallas, the Garland market. You know, I have an uncle that’s a developer as well.
Grant Pruitt ([00:17:33]) – And he was given this talk and he said, you know, in the 1970s we were developing warehouses in Garland and lease them at two bucks a foot. And he said, you know what? Rents are now, this was about 2008, 2009. He goes two bucks a foot. And so it took really 35, 40 years for us to see rental appreciation in some of these markets because we just built so much product here in Dallas Fort Worth. You’re seeing the inverse, the industrial demand, even starting prior to Covid, Covid accelerated e-commerce, which, you know, everybody talks about e-commerce last mile. But even prior to that, the the drivers of industrial demand were on shoring of manufacturing. An e-commerce. We we, you know, the third driver of demand that we’ve seen has been increased inventory levels, which is typically about 30% increase inventory levels. I call it the toilet paper effect that you don’t want to run out of toilet paper. So you stock up on 30% more toilet paper than you need in your warehouses.
Grant Pruitt ([00:18:36]) – Um, it’s it’s the the increased inventory levels more or less is played out through the system. What is continuing to play out is on touring or manufacturing and even more so, e-commerce, because only about 17% of our retail sales are e-commerce. And I don’t know about you, but my home has more Amazon boxes that show up than every day. There are more Amazon boxes that show up at my house than the day before, because we’re we’re embracing the idea of e-commerce in our household. And I think that’s only going to continue to accelerate. You know, the last mile is going to get more and more and more complex because that speed to the rooftop speed to market is going to become more and more important, and technology is going to enable us to be able to do that. So when I say it’s market specific, you know, we’re in Dallas-Fort worth, you can reach any the majority of the country within a thousand miles. So that’s a two day drive for a truck driver. One day. If you have two truck drivers, what changes? That is automated trucking, which is here.
Grant Pruitt ([00:19:43]) – We’re going to continue to see an acceleration of different markets that grow because of what technology is inspiring. And so your question about seeing the inverse. Yes, we are seeing the inverse. We’re seeing spaces that were functionally obsolete that didn’t lease for 30 years, that were in markets that were in the doldrums, that are now some of the hottest markets in the country. Great example is the valid market here in DFW. We were doing $3 gross deals on buildings that now are probably going to get 10 to $10 net, and that market went from a very undesirable market because it was smaller, smaller products, shallower bays, older product, functionally obsolete class for sprinklers and. When people started trying to identify what was close to rooftops. Well, I’ll be darned. It is right there by all the rooftops. And you know, Amazon has completely disrupted the distribution model. You know, if you remember ten, 15 years ago, they started with million square foot facilities in in most metropolitan areas, you know, in DFW they built 2 million square footers.
Grant Pruitt ([00:21:06]) – And if you the idea of e-commerce was that you weren’t going to have as much need for industrial space because it was literally going to come in and out and you weren’t going to have to warehouse anything. And what happened was it did the opposite. So it grew the inventory levels and it grew the need and demand for industrial space. So then Amazon went for 1,000,000ft, and then they started leasing 500,000 square foot. And then it went to 250. And I’ll never forget they at least 70,000ft in a like a 14 clear, completely functionally obsolete building in central Dallas. And it was like everybody that was real estate professionals had exploded and said, why on earth are they doing that? What are they thinking? And it was because they needed a presence to be able to quickly deliver goods and, well, goods to households. And it broke the model. It absolutely broke the model. So you’re going to continue to see that. But I do caution people and that everything in real estate is a pendulum. It swings this way, it swings this way, it swings this way, it swings this way.
Grant Pruitt ([00:22:09]) – And I don’t see a reason at this point in time. But there will come a day when we overbuild and we don’t have a need for as much industrial space. And we’re going to having we’re going to be having the same conversation we’re having about office that but it’s going to be about industrial because I had that conversation 15 years ago.
Sam Wilson ([00:22:27]) – Isn’t that the way it is, though? I mean, this is something I was on a panel here a couple of weeks ago. We were talking about just being opportunistic in that it is the way real estate runs. Like you’re saying, we were overbuilt maybe on office space right now. We went through an incredible run in the last decade on the multifamily consolidation on just, you know, like you said, increasing increasing rents, prices just cap rates compressing, prices, skyrocketing. And now we’re seeing that seeing that cool off to a certain degree and again in certain markets. But I think it’s one of those things where it’s just it’s stay in front of that, being in tune with what’s happening in the market and really staying true to fundamentals.
Sam Wilson ([00:23:06]) – And I’m sure it’s one of the things you guys preach to your investors is really stick to your fundamentals, because not everything lasts forever on the bad side or the good side. So I.
Grant Pruitt ([00:23:14]) – Think that.
Sam Wilson ([00:23:15]) – Yeah, that’s really, really cool. Grant, this has been awesome having you come on the show today. You’ve broken down really two really key asset classes that many people are interested in, both probably on the sidelines watching office and then actively investing in on the industrial side, giving some great insight, both what’s happening in your market and then also around the country. This has been absolutely fascinating. Thank you for your time. If our listeners want to get in touch with you and or your firm, what is the best way to do that?
Grant Pruitt ([00:23:42]) – You can go to? You can go to Whitebox Real Estate, or you can send us an email at contact at whitebox.
Sam Wilson ([00:23:50]) – Real estate.com Whitebox Real estate.com. We’ll make sure we include that there in the show, notes. Grant. Thank you again for coming on the show today.
Sam Wilson ([00:23:57]) – It was certainly a pleasure to have you.
Grant Pruitt ([00:23:58]) – Thank you for having me.
Sam Wilson ([00:23:59]) – Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.
