John Powell is President of Phoenix Commercial Properties, an industry-leading commercial real estate company in Raleigh North Carolina, representing landlords, tenants, buyers, and sellers in commercial transactions.
In this episode, he shares valuable nuggets about how you could succeed as an investor in commercial real estate.
[00:01] – [09:13] Stepping Out From His Father’s Shadow
- John credits his father who’s an attorney for the building foundation of his business acumen
- He focused on commercial real estate straight away and started a brokerage
[09:14] – [16:58] Investing in Commercial Real Estate
- The things tenants are looking for in a rental property
- Analysis: The key to finding a good office property
- What a good cap rate is and how you can make the most out of your property
[16:59] – [20:30] Keeping The Team Together
- The importance of team building in strategic planning
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- Unites the team members for the same goal
- Members’ inputs are valued and heard
- Uplifts the team spirit
- It’s one of the best investment as people is the key to business success
[20:31] – [22:40] Closing Segment
- Reach out to John!
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- Links Below
- Final Words
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Tweetable Quotes:
“Where there are losers, oftentimes in a marketplace, another similar position product to be a winner.” – John Powell
“I tell people all the time, this is not my journey, this is our journey. And even though I might be the one dropping the price, I greatly value their input.” – John Powell
Connect with John for real estate investment opportunities! Visit the Phoenix Commercial Properties website now or email him at jpowell@phoenixcommercialnc.com
Connect with me:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
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Email me → sam@brickeninvestmentgroup.com
Want to read the full show notes of the episode? Check it out below:
[00:00] John Powell: If it is a well-positioned building that has one single tenant with a long-term lease, obviously, the cap rate is probably sub-by. If it’s an industrial building, with one tenant or two tenants, 100,000 square feet, 4000 square feet, and their brand new seven or 10-year leases, those buildings that we’ve traded in a three and a half or so for. So on one hand, the buyer pool is very minimal. But if you have that product type, and if you want to sell it, you will be inundated with opportunities.
[00:42] Sam Wilson: 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. John Powell has been involved in the commercial real estate landscape for the last 30 years. He’s the president of Phoenix Commercial Properties based in Raleigh, North Carolina. John, welcome to the show,
[01:04] John Powell: Thank you so much for the opportunity. Good Afternoon.
[01:08] Sam Wilson: Hey, good afternoon. Appreciate you coming on. You are living the dream in the state I just left. Man, you live in North Carolina. That’s a gorgeous state to be in. John, there are three questions I asked every guest who comes to the show in 90 seconds or less. Can you tell me, where did you start? Where are you now? And how did you get there?
[01:27] John Powell: All credit to my father. He was an attorney in Cary. And he earned a small office building when I was growing up. So growing up, I was the janitor, and the landscaper and I had a chance to work on Fit ups every now and again as someone improves the space. While I was in college, he decided to assemble 125 acres out near the Raleigh Durham International Airport credit business park. And before I knew that I was getting my real estate license. And I was learning a lot about development. I was going before a town council meeting to speak at a public hearing or to try to get a site planner freeze, and very quickly took over the marketing of the project. And I was honored enough to create marketing strategies I’d studied in college, around an asset class, I then decided to open up my own real estate firm. And I had that firm for 20 years before joining a larger firm in Raleigh. And then I came over being exactly just started my 16th year. So five years ago, unfortunately, the founder of this storm passed away very unexpectedly. And they asked me to come over and to want to drive the bus. And so it has been a 30-year journey. Plus a lot of childhood education that really has delivered me to where I’m at today.
[02:51] Sam Wilson: Man, that’s awesome. And you’re involved in a business that bet when you were a teenager you’d never see yourself being involved in.
[02:58] John Powell: No, not at all. I will say that summers and Christmases oftentimes be at home from college, I might work at my dad’s office. And I would see people come in, but I quickly realized that they were representing clients or projects or developments or redevelopment of older type products, you really bring new life to it. And I decided to not really look at the residential sector, I focused on commercial literally from day one.
[03:30] Sam Wilson: That’s really cool. And that I mean, that’s a jump that a lot of people struggle with is going from the residential to commercial and you kind of just got baptized by fire. It sounds like directly into the commercial market.
[03:43] John Powell: That is a very accurate statement. Because I had a team of three, I had me, myself and I and I opened up an office and I really just tried to figure it out now I had in-house counsel. And so I relied on my dad a lot. And he was a very sharp attorney. And so again, I’m very thankful for maybe the way that I was able to at least get initially into the business.
[04:10] Sam Wilson: Now, what’s interesting is that you got in 125-acre project was your dad’s project, right?
[04:17] John Powell: It was. It was very ambitious. And there were a lot of bumps and bubbles. I still remember one of his first lines, imagine a development loan in today’s market at 18% interest. Do remember and I was just getting started into commercial real estate and I was like that, I don’t know a whole lot. But this doesn’t sound like a good idea. And the smart thing that he did was every dollar he made when he sold a lot or actually handled the market. We sold a lot. He paid off his debt. In my first client, I got a chance to see him never take money out of the project. In essence, he wanted to be debt-free and that is gold when you look at what we all do.
[05:05] Sam Wilson: Absolutely. What gave you the idea to go into brokerage versus being on the investment side, kind of like your dad?
[05:14] John Powell: I thought that I didn’t have $100 million dream. I just had the checkbook, oh my goodness, I could change the world. I’ve never been that guy. So I really had to work for a living. But I really thought that I had the personality I had local knowledge, and certainly business connections to work, I can help people. And I’ve always been a quick study. On the same token, I’ve never been one to know all the answers. I’ll be straight up and tell somebody that I might not know it. But I know where to find the solution. And my dad taught me a lot about integrity, and just being a managing word. And, you know, that really has proven very fruitful. And not only in good economic times, but certainly in more difficult times, because it does kind of bring out the true test of a man when your backs against the wall, right?
[06:06] Sam Wilson: That’s absolutely for sure. What are you guys focusing on right now in your brokerage? Like what? What is your core specialty?
[06:15] John Powell: I have say, among our 10 brokers who are in production, we’re not a solid firm. So let me first say that we have dear friends who are the nationals. And they’re just in that office sector or just in that retail sector. We’re a bit more of a generalist if you will, but we also understood the importance of swimming in the pond that you feel comfortable in. I am mainly an industrial guy. I’m also an office guy. Those are probably the two platforms I spend 99% of my time now. We have others here that are more focused on retail, and or investment sales and or land. Instead of the primary sectors office industrial retail and multifamily. We do a little bit of multifamily. But typically, it’s more on the land side, representing the seller and representing the buyer in this live selection.
[07:08] Sam Wilson: Got it. So tell me this when you look at the market right now, and I know this is every real estate market is local. But where is the greatest opportunity? If somebody came to you and said, John, Hey, man, I got a pile of money. I want to invest it in Raleigh and or its surrounding areas. What do I do with it?
[07:28] John Powell: Well, we probably would stay away from the industrial sector and or the flex sector or Rockley, they’d never known a pandemic is going on. That is the most competitive sector we have right now. tremendous demand for that product, yet very low supply. Hence, high price multiple offers hardest as you can imagine, all the guys and girls who we want to support the restaurants, there are various service organizations. They have rebounded, but they are still I’ll call it saw said probably the best sector to maybe invest in right now will probably be the retail sector office along the same lines, a lot of the office market because of that work from a home platform that we’ve all kind of become accustomed to. And again, really kind of an attitude adjustment for all of us. Some office buildings haven’t been able to adjust the buildings that have amenities attached to them. So maybe they have an on-site gym, or they have a cafe or they have walking trails, kind of exterior amenities. Those Office projects have really continued to thrive and or certainly Nettie remained stable. The older buildings that maybe haven’t been repurposed or the nicer, minus buildings that maybe didn’t have that amenity package, have struggled. And so we do have out-of-market investors who are looking at some of our lives. Nice, well-notated office properties that to me offer tremendous offset.
[09:03] Sam Wilson: What are people doing with those? I mean, if they are amenity, light, maybe nice product in a good location. What are people doing to make those attractive assets?
[09:14] John Powell: Probably the number one thing Sam that they’re doing is trying to figure out how can we kind of even the playing field like some of them will add an exterior amenity like a putting green or a not a fire pit but just an outdoor gathering space to where you truly can offer that aspect to the campus. Others have all of a sudden become Yeah, I’m a fan of that food truck. My daughter loves a food truck. And so all of a sudden you have food truck Tuesdays. Oh, rotate that and inspect. We have one landlord that every now and again he has a power issue. He likes ice cream. So the way that he trusted think or reach combat that issue with his tenants is if he ever has kind of an issue that affects the quality of your experience there in that building. You’re going to be blessed with some ice cream, probably a Monday or Tuesday the following week. That’s hysterical, hysterical.
[10:13] Sam Wilson: You say built buildings that are struggling or they’re, you know, rapid vacancy? Is it? What would you say struggling? What do you mean by that?
[10:23] John Powell: Probably. And it really depends on the sector. But let’s say take the office sector, for example, Sam, the urban areas, downtown Raleigh, downtown Durham, downtown Charlotte, the towers have been extremely affected by the work-from-home environment, therefore, and today. Here it is in August, those buildings may be I’m going to teach 60 to 70% full. So there’s a tremendous amount of sublease space in those buildings. So as a tenants, you could potentially capture value by taking on a sublease space. On the same token, that building being less than four, all of a sudden, the men and women who are selling coffee and bagels for breakfast, nobody’s there to buy that, right? And women who are selling lunch, there’s no way to buy that because those who are in those buildings, more than likely have brought their lunch to the office. And so it kind of there’s this trickle-down effect for those buildings, the winners have been what we call low-res product, the 23456 story product almost seems to be a mindset of saying that I don’t want to run the elevator with you for say 18 floors. On the same token, I can’t walk 18 floors to get to the office. Yet, I don’t mind walking three, four or five flights of stairs to get to my office. So where there are losers, oftentimes in a marketplace, another similar position product to be a winner. From a tenant rep sign the agreement from a landlord rep sign. Even we’re on the third floor of a Class A building. And within our three-building campus here, there’s a very little vacancy, we relocated our office on December 1 2020, in the midst of the pandemic, we invested ourselves so to speak. There was a lot of vacancies here in the street, building campus when we came over in the last year and a half. He’s been in general almost full, though, definitely emphasizes my point. This area has been one of the benefactors, or people vacating the tunnel.
[12:27] Sam Wilson: That’s interesting. So you’re saying a low rise two to four-floor office building with amenities is really what right now it seems that people are looking for?
[12:41] John Powell: You know, we all want the good ingress-egress, we want to mediate parking, and that’s on the other. But absolutely, if you have good access to the interstate or any other areas to banking, and retail, and other things that we need just to conduct our lives, these buildings are thriving, I will also say the proactive landlords, the best, the best. They have now increased their janitorial services, for those that are concerned about the pandemic. And So case in point in our building, we’re fortunate we have a day quarter that cleans the restaurants to three, four times a day cleans the lobby twice a day. That is an exception. But yet, it really gives us a comfort level that maybe we didn’t demand or maybe we didn’t even need it. But yet, now that we have it, we feel very thankful. Because we really, were we just the plant rd?
[13:38] Sam Wilson: Yeah, absolutely. I think that’s really cool. I mean, it’s one of those things. People love to say that, you know, there’s no opportunity in office space or you know, paint broad, broad brush, you know, strokes, eight, all right, you know, the office is dead, but you’re telling us that it’s not. And it’s not with a very specific focus. And I like that because I’ve often thought and I’m not an investor in office, so I don’t know anything about Office other than what you’re telling me and what I’ve heard. But it’s always nice. Just to hear from someone that knows, man, there is an opportunity, you just have to know where to look for it.
[14:13] John Powell: And I don’t think that was the type of investment that we want to pursue, whether it’s individually or collectively, it is just doing your analysis. If you can kind of go in and visit some of these sites, you’ll quickly see those that take care of the exterior, and more than likely they’re taking care of the interior. And so if I were to be a buyer, I can take an abandoned building and spend a lot of money to retrofit it or I can maybe take an underserved building and then do more minimal upgrades to kind of maximize that return.
[14:44] Sam Wilson: Is there and I know this is an unfair question. So I’m going to ask it anyway. You can tell me it’s an unfair question and leave it alone. But is there a cap rate that these are trading in right now that you can say this is the range that your looking at?
[15:02] John Powell:That’s a big question. And I will say calculate cap rates have been in my 30-year career, they’re probably at an all-time low. Sure. Oh, as interest rates are piping up, and we anticipate more interest rate hikes this year, and certainly into 2023, we believe they’re going to continue depending on the sector you’re in, depending on the product type. Similar his cap rates are roughly mine, that it’s right, or they will certainly not move to match the increase in interest rates. Right? If it is a well-positioned building that has one single tenant with a long-term lease, obviously, the cap rate is probably sub-by. If it’s an industrial building, with one tenant or two tenants, 100,000 square feet, 4000 square feet, and they’re brand new seven or 10-year leases, those buildings that we’ve traded in a three and a half or so for, wow, it’s actually incredible. So on one hand, the buyer pool is very minimal. But if you have that product type, and if you want to sell it, you will be inundated with opportunities. We just did a deal on a large industrial building, we were fortunate to capture a 20-year lease on it. And it, we checked all the boxes. And again, this was kind of the unicorn, this was the leprechaun rotting the unicorn. And those are the deals we try to get. If these investors wanted to sell that building, they could sell it for, you know, three. But there’s such a new lease, there’s no incentive to do it. And so we’ve just recommended that just sit on it and enjoy it. And maybe down the road, will be a time to look at recapturing those dollars.
[16:59] Sam Wilson: That’s really cool. Last question for you here. John, thanks for taking the time to kind of break down where you’re seeing opportunities in your market and where you’re seeing risks. But you guys do something every October there with your team and you don’t just do it once but you do it for entire days. Tell me about the value that brings to your company. And what you guys do?
[17:21] John Powell: Oh my goodness, I say one of the things that we just finished commercially as and culture is really the bedrock of who we all are really, the people here at Phoenix, as I refer to them, each of us are an individual ingredient and our recipe for success. But each October we get out of town. And we’ve gone to North Carolina mountains, we’ve gone to North Carolina as we’ve gone into Virginia, and we just get away. And we stay together and we put together we clean together. We do a lot of team-building exercises, we have a lot of fun. But we do a lot of strategic planning on not only where we’re at as a company, but we’re looking at where we’re going really what is the path that we want to take. I tell people all the time, this is not my journey, this is our journey. And even though I might be the one dropping the price, I greatly value their input. And so getting out of town, and just kind of pausing for a few days, and we invest a lot of dollars to accomplish this. But the return on our investment, Sam, it is tremendous. And it really has allowed us to grow closer as individuals so when you team a project with someone, your team and on a project with someone that you truly trust and you value their opinion, as I’m trying to make decisions internally, I have surrounded myself with a core leadership team of three other individuals who I greatly appreciate their opinions, but I lean on them and I greatly respects the time energy and effort that they put into this immunization but get out of town each October it is a blast last year, we went to Wilmington, and we decided that we’re going to get back to this year. So that’s already booked and we can’t wait.
[19:10] Sam Wilson: Man that’s awesome. I love the idea of you know, I guess as it pertained maybe even to you know, I heard this on the on another interview I did today and he called it pre-site work big developer. So it’s kind of your pre-site work, you know, for your team and for your organization. That’s just so hard to do. I mean, it’s hard to do because it seems like there’s always too much to do. And so taking four days off…
[19:35] John Powell
It’s hard and it really requires commitment and so we do a lot of training while we’re there. Oftentimes. In the mornings after breakfast, we will have training until kind of mid-afternoon. Obviously we break for lunch we check emails we checked voicemails were returned calls, but we have never run into a complete conflict. It is amazing. Our customers when we share with them really what we’re doing Some of them have begun or truly are looking into how they can implement within their organizations.
[20:06] Sam Wilson: I love it. I love it. John, you’ve given us so much to think about here today. Again, you know, just to rehash it, you know, you’ve given us an opportunity or showed us how to find opportunity in the office space. You know, you gave us some warning signs on the industrial side of things and guess what to expect on that front. And also just what you guys are doing to build team and culture inside of your organization. Absolutely love it. If our listeners want to get in touch with you and learn more about you what is the best way to do that?
[20:31] John Powell: Probably the easiest is our website is phoenixcommercialnc.com. My personal email is my first initial last name. So JPowell@phoenixcommercialnc.com. And we welcome additional conversations certainly with you in the future, but certainly, the listeners that I have enjoyed this today.
[20:55] Sam Wilson: Awesome. Thank you, John. We’ll make sure we put all that there in the show notes, appreciate you coming on and have a great rest of your day.
[21:00] John Powell: Thank you again for the opportunity and blessings to hear the family take care of yourself.
[21:04] Sam Wilson: 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 podcast, Spotify, Google podcast, 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.
