#2 – Summit Hogue

Mark Taylor (00:00:03):
Welcome to another episode of Supply Chain Saga. I’m your host, Mark Taylor. Today, I’m interviewing Summitt Hogue. Summitt is the founder and managing partner of Growe Real Estate Partners. Summitt stands out in the crowded field of commercial real estate as the only professional I know who focuses exclusively on the needs of 3PLs, with extensive experience working in all major markets in the United States and Canada. He has a unique perspective on the industry. I’m eager to introduce you to Summitt and share his insights with you, so let’s get going. All right. Welcome.
Summitt Hogue (00:00:36):
Thanks for having me on, man.
Mark Taylor (00:00:37):
Absolutely. I appreciate you being here. Let’s go ahead and start with just introduce yourself, tell me, and then we’ll get into the backstory about how we met.
Summitt Hogue (00:00:46):
Yeah, yeah, yeah. My name is Summitt Hogue. I run a company called Growe Real Estate Partners.
Mark Taylor (00:00:53):
Grow with an E.
Summitt Hogue (00:00:54):
Grow with an E. Commonly confused for Growe, but it is just grow and the E is silent. We’re a commercial real estate firm and we’re just hyper-focused on managing the portfolios for, the real estate portfolios for 3PL companies because they’re extremely underserved. A lot of brokers out there shrug their shoulders when they talk about representing a 3PL, because 3PLs are challenging sometimes when they get you going and doing a lot of work when they’re trying to win an RFP. Then, the deal ended, it might not make because they didn’t win the deal, and then the broker just ended up wasting time. Long story short, I saw this niche in the market where there was a lot of 3PLs that just, they just weren’t getting represented really, really well.
(00:01:46):
I decided to attack that and be the guy that serves 3PLs better than anybody. We’ve vertically integrated into where we’re trying to fill buildings for 3PLs, bringing them leads, and then helping them go secure more space. It’s this cyclical business where we create space, we fill space, we create space. Then, in the meantime we’re just like a full service consultant firm for these guys and helping them do anything and everything, man. Our whole model is built on facilitating growth, and it’s a good time, man.
Mark Taylor (00:02:21):
It is a good time. Backing up a little bit, so you’ve been in this, how long have you been doing this?
Summitt Hogue (00:02:29):
Man, about six years now.
Mark Taylor (00:02:31):
Okay. It’s 2018, I just moved out to Southern California. I was still in a, I think the first building was right at 20,000 square feet, like 900 rack position or something. I remember living on an air mattress, and all of a sudden out of the blue I get this LinkedIn message from Summitt Hogue and it said, “Hey, I’d like to talk to you.” I’m thinking, “Okay.”
Summitt Hogue (00:03:00):
It’s great. Hold on your mattress was in the warehouse though, right?
Mark Taylor (00:03:05):
Oh, yeah, yeah, yeah.
Summitt Hogue (00:03:06):
That’s a big piece of this. My man was sleeping in the warehouse on an air mattress. That’s how dedicated he is to his business. It’s awesome.
Mark Taylor (00:03:16):
Yeah, you just didn’t know. We raised enough money to start and then had to raise, of course, subsequent money because warehousing is far more expensive than anybody really thinks. Lots of big chunky costs once you start talking about deposits and this and that. We moved out there and I just remember this could be three months and I could have, God forbid, lose everybody’s money or this is going to work. But in the meantime, I don’t need to worry about getting a place. I need to worry about running a business. I would sneak back in after hours and make sure there wasn’t any activity. Because I didn’t want anybody to know that there was a human living in there. Of course, I’m sure there was something against the zoning of that.
(00:04:03):
I don’t know, maybe there was, maybe there wasn’t, but I assume there was. Yeah, I had to sneak around for a summer until we moved to the second warehouse and things started growing. Here I am in this warehouse and I’m walking around the whole summer, hearing footsteps echo. Out of the blue I get this message and I’m like, “Oh, all right. People are starting to take note.” We got on the phone and you started telling me about what you are doing. I think you were actually probably one of the first people who was effectively using LinkedIn as a tool. I also think you as somebody who’s … I’m okay at networking, but I recognize your skills in networking are incredible. Just tell me a little bit about how did you, in that six years when you first started out, just give us the timeline or how you did things.
Summitt Hogue (00:05:01):
Yeah, I appreciate you saying that. I started in commercial real estate and I grew up on a farm out in West Texas. Then, I thought I was going to be a farmer, and that didn’t work out. They work way too hard out there for way too little. My dad was like, “Hey, buddy, this ain’t it. You need to go find something else.” I left the farm and got into real estate. The model in real estate is, here’s your geographical area. Go out there every single day. Talk to every single business owner and try to win every real estate deal in this geographical area. Well, I spent an entire year in Grand Prairie, Texas going door to door to door, getting my teeth kicked in. People, they’re ruthless out there when you’re just rolling in off the street.
(00:05:47):
One thing I kept running into is that when I walk in, and I don’t know anything about this person’s business, all I’m trying to convince them of is that I know this real estate market really well. Well, that’s a dime a dozen. There’s a lot of people that know this real estate market, so I’m not separating myself at all. Then, I stepped back and said, “Okay, there’s got to be a better way to do this.” Everybody in our industry does it the same way. They all have this geographical area, and that’s their niche. That’s what they focus on. I step back and was like, “Well, I’m going to focus on an industry and I’m going to learn that industry in how to speak their language better than anybody and teach myself that sort of how to communicate well and effectively with them, so that they feel like they’re more confident in me managing their real estate.
(00:06:31):
Because I understand them and their business and what their goals are, what they’re doing and what they’re chasing.” That was a big key there, was what are they chasing and how can I give it to them? Because that’s how I get in the door, because who doesn’t want somebody to hand him a lead? Then, if they win the business, awesome. You’re just like, “Man, this guy just came in off the street and handed me 5,000 pallets. That’s a great deal. Thank you.” It starts there.
Mark Taylor (00:07:01):
I want to pause and just make sure it’s clear. In learning the business and basically integrating yourself in the industry, you see a lot of opportunities. Part of your offering at this point has been to, and obviously, not for everything, but when something comes in off the street that works for a particular client in Des Moines, for instance, you’d say, “Hey, actually, I’ve got a 3PL out there I’ve worked with, or I know a guy out there.” Part of your service offering is actually not even just saying, “Hey, I want your business.” But it’s like, “Hey, here’s some business that might work for you.” Then, once that happens, you start cementing yourself in that relationship.
Summitt Hogue (00:07:40):
Yeah, the goal is to just facilitate growth at all costs. If I can facilitate growth, the odds are that I’ll be able to manage the process to go secure the next building. That’s where we really get paid. The landlords who pays us, so the 3PL, they don’t even have to pay us. We’re just somebody that works in the background and serves you better than any other, and deeper than any other real estate broker’s ever going to do. I basically started focusing on this industry, and then that’s when my business really started to take off. Because I spent a full year in Grand Prairie, and I didn’t make anything happen for a year. I was as broke as a joke, man. My girlfriend at the time, now my wife, was paying for dinners by handing me the credit card under the table so that it looked like I paid for it with our friends.
(00:08:30):
That’s how bad I was. I was in a bad spot. But once I really started zoning in on this industry and pursuing it and serving it, then things really started to change for me. How I did that was a lot of, like you said, LinkedIn, man. LinkedIn is an absolutely incredible tool if you use it the right way. Sales Navigator is just 70 bucks a month.
Mark Taylor (00:08:56):
It’s incredible.
Summitt Hogue (00:08:59):
But you can drill down a search on LinkedIn to a very fine group of people that are very specific to what you’re looking for. If you’re strategic in your approach to some of those folks, like reaching out with real value, in a real thought-provoking question or something to get engaged with them, then once they respond once, they’ll usually respond twice, and you can take it to a phone call. Once you get it to a phone call and you explain, in our business, and you explain that, “Hey, we’re talking to brands and shippers and manufacturers all the time. I’d love to have you as somebody we could hand those deals off to.” They’re like, “Dude, yeah, that’d be amazing.” Then, after we do that a couple times, then they’re like, but … They always ask me, “How do you make money?”
(00:09:58):
I love that question because I go, “Listen, man, we’re a commercial real estate firm, so when we’re representing you and you go sign a lease on a building or buy a building, the landlords pays us, you don’t ever have to even pay us. We just want to be here to facilitate growth for your business because when you grow, we grow and it’s just a true partnership.” They love that. It truly is the most genuine form of a relationship between two businesses because the landlord is who pays us, so we get to serve you on their dime. It’s a wonderful model.
Mark Taylor (00:10:39):
It is a great model. I do also want to point out though, because anybody who could potentially listen to this, who eventually might come to work with you or anything like that, that’s not to say that there are … sometimes you will give a deal and there are certain clients who will say, “Hey, thanks. Here’s a referral fee or something like that.” That’s not out of the question. I don’t want anybody to come to the table, “Well, normally, they would give us a referral fee or anything like that.” It’s one of the things that can happen. It’s not that it doesn’t.
Summitt Hogue (00:11:09):
Yeah, some guys do, and some guys look at it and they say, “Look, man, you’ve brought us some really good clients. I’m not going to let that go without paying you guys for it.” I’m not going to ask for it. I’m not going to beat your door down if you don’t pay me. But if you do pay us, man-
Mark Taylor (00:11:28):
Of course. You’re probably going to show them a few more deals.
Summitt Hogue (00:11:30):
Yeah, for sure. But it just really means a lot to us, and it really shows how deep that relationship is. Like, you love how much I’m serving you, so you want to serve me back in that way. I think that that just creates such a strong relationship where … Man, we really do some cool stuff with guys that do that too.
Mark Taylor (00:11:54):
Yeah. No, no. As I have gotten more and more integrated over the last, since 2018, so we’re four and a half years in, just over four and a half years, the industry is very small and the standouts are few and far between. Then, you find out that the people you admire, that you happen to know the other people that you admire. It’s like, this is definitely a very cream rises to the top in this industry. Switching gears a little bit. Well, actually, no. Let’s actually not switch gears. It’s still in the same sphere. You get on LinkedIn, you’re doing these searches, and I agree with you, Sales Navigator is incredibly powerful. But the same reason why anybody who listens to this won’t go and get a Sales Navigator account and start using it and learn it and utilize it, is the same reason why somebody won’t open up the phone book and just start calling people.
(00:13:00):
Call into a front desk and say, “Hi, I’m with Warehouse Republic. We’ve got logistics offerings, and can we speak with your supply chain manager?” Yeah. People just don’t, typically do not do that.
Summitt Hogue (00:13:12):
It’s uncomfortable. A lot of people get uncomfortable with that and they don’t like uncomfortable situations, but that’s truly where growth happens. There’s another piece to it too. If you take the approach of, I need to let this person know about how well we can serve them and make their business better, rather than I’m trying to sell this person something, it’s a totally different ballgame,
Mark Taylor (00:13:53):
Absolutely.
Summitt Hogue (00:13:54):
When you just switch your mindset to, this person doesn’t know how much value I can add to their business. I just need to let them know. That’s it. Then, you spark a conversation that way, versus, I really want to sell this person. I got to sell this person. No, that comes off to salesy and people cut you off for that, so it’s different approach.
Mark Taylor (00:14:01):
You’re saying something very similar to what BJ said, and that was, I want to make, whoever the decision maker at the company I’m working with, I want to make them look good. We engaged with, in his case, Pacific Mountain Logistics. That guy in that company is now a hero because that supply chain thing is just figured out so well. You figure out LinkedIn, I guess you must have figured it out pretty early because that’s, once again, that’s how you messaged me.
Summitt Hogue (00:14:35):
That’s all I had. I was sitting there at a desk and I was going, man, I love the model that I’m thinking is going to work, where I can pursue 3PL companies across the country, but how do I reach them? LinkedIn was that tool.
Mark Taylor (00:14:49):
Yeah. At this point, were you still reporting to a manager? Were you working for a firm?
Summitt Hogue (00:14:55):
Yeah, so I was working for a company called Rubicon. Rubicon is a very, it’s just a, “Hey, bud, here’s a desk, a phone, a computer. This is your market. Good luck.” Nobody’s checking in with you. You’re not getting paid a salary. It’s straight 1099. It’s one of those situations where if you come in and you make it, great. If you fail, next man up kind of deal. It’s just very sink or swim. I didn’t have anybody that was consistently following up or checking on me. It was just like, you’re just dropped into the ocean, and if you swim, great, if you sink, next man up kind of deal.
Mark Taylor (00:15:31):
For somebody, I think with your personality, that worked well.
Summitt Hogue (00:15:34):
Yeah.
Mark Taylor (00:15:34):
Because it did give you the freedom. You weren’t reporting to a manager that said, “Well, no, no, no, that’s not how it’s done.” You weren’t being discouraged.
Summitt Hogue (00:15:42):
Well, that’s an interesting point because that’s one thing that I really noticed, is that the whole commercial real estate world is guys in their mid-50s, late 50s, early 40s, just older guys that have been doing it a long time in the same way. All the young guys work for those guys, and they tell them exactly what to do. When they say jump, those young guys say how high? They don’t get to think outside the box because they have to do it like their boss tells them. I was fortunate enough to go to a real estate firm that was very, like I said, sink or swim. I had to figure something out. I just didn’t have a choice. I didn’t have anybody to ask for directions, so I had to create the direction. Then, I had to be the captain and the engine of that ship at the same time.
(00:16:35):
Ultimately, it was the best thing that ever happened to me as I got into this business, was go into a firm like that. I ended up leaving there once I really fine tuned the model and realized, “Hey, this is completely different than their entire business model. It’s not really aligned anymore with where I’m going with this and where they are.” I said, “I’m going to go start my own real estate firm that’s just going to be hyper-focused on this one niche and be the best in the entire country at it.” That’s where we are.
Mark Taylor (00:17:09):
Yeah. Now, tell me what was the first deal that you closed?
Summitt Hogue (00:17:15):
The first deal, man-
Mark Taylor (00:17:18):
If you need to be sensitive and not say names, it’s fine.
Summitt Hogue (00:17:21):
No, I love this because you already had him on the podcast, my man, BJ Patterson. He single-handedly changed my life forever because I was in an astronomical amount of debt. Because when you go a full year without bringing in $1, yeah, you rack up some debt. I was really sitting there looking at myself in the mirror going, “Man, I don’t have a choice. This has to work.” BJ’s the first guy that gave me a chance, and we absolutely knocked it out of the park for him. I can’t even begin to thank him enough for just trusting me and giving me that chance, because as soon as that closed, I paid off all my debt and I wanted to marry my girlfriend so bad, but I couldn’t afford it.
(00:18:18):
When that deal closed, I went straight down to the jewelry store and bought her a ring and asked her to marry me. He single-handedly allowed me to just change my life, get out of debt, and go buy a ring so that I could finally ask this girl that’s been floating me, that’s been paying for my dinners, all of that, and buy her a ring. I’ll be in debt to him for that the rest of my life, man. I love BJ Patterson. That’s a good man.
Mark Taylor (00:18:46):
Yeah. Absolutely. Then, BJ does it, and then what does deal number two look like? How did you get that one and did that open the floodgates?
Summitt Hogue (00:18:57):
That opened the floodgates, because once I had proved that this actually works, so I got one big skin on the wall, then I roll in. LegendzWay, Mike and Jeff own LegendzWay distribution here in Dallas, and it’s actually funny. I was on LinkedIn and I got connected with a guy over at Stord. I know you know the Stord guys.
Mark Taylor (00:19:20):
Yeah.
Summitt Hogue (00:19:21):
It was Sean and Jacob. They had just started the company. I connected with Sean and I just said, “Hey, man, can we talk about what you guys do?” We jumped on a call. He starts telling me about their whole model. I’m like, “Wait a second. Fourth party logistics? That’s a whole another animal.” But as he was explaining it, he was like, “I need a network of 3PLs because we’re going to have the deals. I just need the network of 3PLs.” I said, “Let me build your warehousing network. Anytime you guys get a deal and you need somebody to take it, you call me and I’ll go find the 3PL and introduce them to you and let you guys take it from there.” Well, he calls me and he’s got a deal for Dallas, and I found LegendzWay distribution.
(00:20:06):
I drive over there and I’m just totally betting on that this model’s going to work, walked in, talked to Mike and Jeff and explain to them that there’s, I don’t remember how many pallets, I think it was like 8,000 pallets of something, and talked to them about it. They were really excited. I’m going, “Oh, well, this is … ” They rolled the red carpet out for me when I walked in there. I was like, “Man, this is crazy.” I’m used to people slamming doors in my face. I made the introduction and let those guys talk it out and bam. They were ready to grow, so we put them in a 220,000 foot building in South Dallas as building number two for Legends Way and covered half the building day one. It was a home run for those guys. Then, once we did that, man, it just started popping off everywhere.
Mark Taylor (00:21:01):
That’s outstanding. Then, we also have a mutual friend in Matt Weiss.
Summitt Hogue (00:21:08):
Oh, yeah.
Mark Taylor (00:21:08):
How did you and Matt meet?
Summitt Hogue (00:21:13):
This is probably the craziest story. I was at Chipotle in uptown and I walked in there by myself and there was a guy standing in front of me, two young guys, and one of them had a hat on that said eShipping. I was like, “Hmm.” I just walked over there. I said, “Hey, man, you guys work at eShipping?” I didn’t know who eShipping was, but I knew it had to be a 3PL. He’s like, “Yeah, man. I work at a company called eShipping.” I started telling him a little bit about what I do. He’s telling me about what he does, and he let me know, he was like, “Well, we’re based in Kansas City.” He was the guy on the team, because they’re a freight broker that had just landed the first warehousing deal for eShipping and they were going to start taking warehouses.
(00:21:59):
He goes, “Dude, it couldn’t be better timing. I just got this company and we’re going to start taking warehouses because that’s a service offering we’re going to move into.” Long story short, talked to Derek Deeds, my buddy Deeds now, and met him at Chipotle line, he tells me, “Hey, you got to call this guy named Matt Weiss.” I get on LinkedIn, start talking to Matt on LinkedIn. He engages with me, “I’m going to be in Kansas City because I go to every Chief’s game.” I flew up there, was in Kansas City for the game, and I stayed on Monday. He took the meeting. I’ll never forget, man, I walked in and Matt is a very intimidating looking guy. He just has this intimidating look about him, but he’s the nicest person on the planet. It’s a weird paradigm. I love him to death.
Mark Taylor (00:22:48):
Oh, he’s an intense guy. He used to race mountain bikes.
Summitt Hogue (00:22:50):
Yeah, he’s intense, man. He’s intense.
Mark Taylor (00:22:52):
Yes, he’s great.
Summitt Hogue (00:22:53):
But I’m like a kid rolling in here. He takes the meeting, COO of the company. We sit down and he looks at me and he goes, “Why are you here? I never take meetings. I don’t know why I took this meeting. Tell me why you’re sitting in front of me right now.” Just this stern face. I’m sitting there like, man, I was on the spot, dude. I just sat there and just delivered like, “Man, look, here’s what I’m going to do for you. I know you guys are going to rule out warehouses. Here’s why you need to work with me, yada, yada, yada.” We talked about that for five seconds. Then, he just stopped me and he was like, “Sounds cool, but tell me about you.” Then, he just didn’t even want to talk about … We didn’t even talk about business the rest of the conversation.
(00:23:40):
It was about life. It was just so cool because he genuinely was just wanting to learn about me. Then, once he knew why I was there, he was like, “Okay, I don’t want to talk about work anymore. Let’s talk about life.” Then, we just hit it off just right there. I felt like I left his office and he was my uncle already. We’ve just developed a wonderful relationship. I call Matt every other day just to catch up on life and talk about whatever. He’s a wonderful dude.
Mark Taylor (00:24:11):
Yeah, he’s a good guy. Your knowing Matt, and then you’re being introduced to me, and I think you made a couple other introductions, Vin Gulisano was one of the ones that-
Summitt Hogue (00:24:22):
Oh, yeah, Vinny G?
Mark Taylor (00:24:23):
Yeah. You knew that we had outgrown our little, so we went from the 20,000 square foot, 21,000 square foot spot to … That summer was very scary because I was walking around hearing my own footsteps echo. Then, we said, “All right, look, we need to find something different.” The sublease ran out, we went down to a 12,000 square foot facility and took 5,000 out of it. About that time, everything started rolling in. We were overflowing, that was August, and by Christmas time we had taken the entire 12 and we needed something else. You made the introduction to Matt, between Matt and I, and they said, “Okay, we’re going to hit the West Coast, we’re going to do it.” They bootstrapped it in a way, the way a big company would.
(00:25:20):
But they started in a 50,000 square foot building, and it didn’t quite come as fast as I think they thought it would. They had a little bit of a sucking sound, and we had a need. You said maybe, and just to reiterate, Matt gave us … BJ was your inflection point, if you will. I think Matt Weiss taking a risk on us was an inflection point because I said, “Look, I can’t afford to pay a deposit.” He said, “Well, I think we can work this out.” He was very creative in it. Then, there was a little bit of a thing where we had grown to take about half of that building, about 25,000 square feet. We were in a position where we knew we could fill out the rest of it. We just didn’t know how long it was going to take.
(00:26:11):
He was in this inflection point where he was like, “Well, we just paid for all this racking. We’re in the hole on this.” It’s like, we could leave, but I don’t know. At the end of the day, he knew he didn’t want to operate two buildings. They went and took down one, I think 150 at the time, or something like that. He worked out a deal with me where I purchased, he allowed me to purchase the racking for just the dollar amount that they had in it and allowed me to pay for it over time. It was a deal where it’s like, we weren’t going to find that otherwise. I think the big key in everything that we’ve talked about up until this point is just the importance of forging these relationships. You never know who’s going to be that next person.
(00:26:59):
That’s, I think, a boring point to make because I think everybody knows that. But still, as we’re reminiscing about the last several years and how each of us have gotten to where we have at this point. Yeah, it’s nice to take note and just have gratitude for it. From the time, and keep in mind, our first sublease in Southern California, the industrial gross on it was 55 cents.
Summitt Hogue (00:27:26):
Oh, my gosh. Those days are gone.
Mark Taylor (00:27:29):
Yeah, that was right across the highway from March Air Reserve Base. If you’re Uncle Rico, you could throw a football over the mountains, you could hit the base, but you could certainly see it and you could see ONT 8 over there and everything like that. We were really, really close. But yeah, 55 cents was what it was. They had negotiated that I think a year before, and then we took the sublease, and then when they renegotiated, I think they settled with their new tenant at like 72 or 73 gross. Those days were even-
Summitt Hogue (00:28:07):
Those days are gone too, man.
Mark Taylor (00:28:09):
… long gone.
Summitt Hogue (00:28:09):
Yeah. It’s wild out there. We’ve seen rent growth out there just in the last five years. There’s guys out there that signed leases in the Inland Empire East, which was always considered far out, that we’re in the low 40s net on buildings, and their renewals are coming up and they’re $1.60, $1.50, $1.60 net. I don’t know how that’s sustainable, but people are signing it and paying it. The city and the state, they’re making it as hard as they possibly can to build new buildings to keep up with demand.
Mark Taylor (00:28:48):
Oh, yeah.
Summitt Hogue (00:28:49):
Which is just single-handedly going to drive, it’s going to drive more rent growth. I think the LA is the gateway. That’s where the containers, that warehouse flow, container flow, freight flow through LA Long Beach is not going anywhere. Even though I think a lot of the moves that the state and the city make, they want it to die. They don’t want any containers coming into their state. But at the end of the day that’s where it’s going to keep flowing no matter what.
Mark Taylor (00:29:22):
It’s interesting that that’s the case. If you look at the city of LA, two of the highest paid jobs in LA are both in the port. One of which I think is the crane operator, the container crane operator. Then, another one, and I’m not saying that they are the highest, but they’re some of the highest. Then, one of the other ones is the tugboat navigators. It’s interesting that they would even think about wanting to shut off something that provides for so many jobs.
Summitt Hogue (00:29:53):
Well, they created the South Coast Air Quality Management District, and that is a group of people funded by the government that are just to try to control the air in Southern California. One of the things that they just did was they passed the ISR rule, the indirect source rule, which basically is an extra tax on every single truck that comes to the warehouse if you’re over a hundred thousand square feet. Their meaning behind it is that you as the warehousing company, or having a warehouse there, are the indirect source for all the emissions in the air. Because of you, we are going to tax you really hard for every single truck that comes to your building.
(00:30:49):
That’s single-handedly going to increase costs for so many users of space out there. It’s going to add millions and millions and millions of dollars to their overall expense on top of their rental rates that are going through the roof. Look, to do business in California, Southern California in a 200,000 foot building, your costs four or five years ago versus today and moving forward are going to be almost four times as expensive when you add in that tax, the rents, labor, all of the above. It’s unbelievable.
Mark Taylor (00:31:32):
Yeah, your cost basis is going up just on the building in terms of, so like we said, 55 cents, and that was at a 21,000 square foot building. That’s one of those more, there’s a lot more competition for people coming in and wanting to take a 21,000 square foot building. A lot more smaller players in this and that. It’s like your rent’s going to be a little bit higher. I remember even as recent as a year ago, I mean almost in January, I think is when we looked at the, what was it? That building out in Moreno Valley. I think that was just a year ago.
Summitt Hogue (00:32:05):
Brodea.
Mark Taylor (00:32:06):
Yeah, yeah. I think they settled on that one for 78 or 85.
Summitt Hogue (00:32:14):
It was in the high 70s. That today is a steal, that building is a $1.25, $1.30 in today’s market because you’re down in Moreno Valley. But yeah, and that’s a month. If you look at that on an annual basis, the difference in 75, 78 cents a month in a $1.20 a month, that is astronomical in how much more money you’re having to pay in rent. It’s crazy.
Mark Taylor (00:32:48):
Yeah, it is. I think this is getting into that point. As you’ve just set back and witnessed and been in this industry, what are some of the key changes that you are seeing? Obviously, costs are going up in Southern California, but we all lived through the pandemic and everything like that. What were some of the key markers that were just … ?
Summitt Hogue (00:33:15):
Yeah. The pandemic, that caused a wild, wild domino effect. I think you’re going to read about it. You are going to read about it in history books forever. But basically, everybody ran out of inventory because they were so focused on, like BJ said, the supply pipe. They had this perfect pipe that was just so perfect, just in time manufacturing, things were flowing perfectly. That got disrupted because China shut down, so they couldn’t get any more inventory in so they ran out. In the same time you had the government popping out stimulus checks, which over stimulated consumer demand. Now, all of a sudden, warehouses are empty and everybody’s place in huge, huge orders trying to replenish inventory and have just in case inventory.
(00:34:05):
What happened with that is you look up and you’ve got 75 ships sitting off the coast of LA Long Beach because they can’t get in. On top of that, everybody paid between $15,000 and $25,000 per container to even get a container on those ships. It used to be 2000 bucks. You’re sitting there going, “All right, all these people, they just placed massive orders.” You got some major companies that are chartering their own ships and bringing in inventory. What happened is when they finally got it all into the buildings, all the real estate developers out there are looking at vacancy rates compressing, and they’re just going, “Oh, we need more warehouse. We need more warehouse.”
(00:34:47):
They start building them, everywhere, all over the place. They’re knocking home runs after another, one after another, because people are just leasing them. They’re building them and leasing them as fast as they can. But it’s almost like that demand, I think the demand is going to remain, it’s going to stay pretty steady, but I also feel like it was so overstimulated. Now, we’re going to get into a position where there’s a lot of open, big bomber buildings out there that aren’t going to be leased. These merchant developers, they built it with the intention of leasing it and selling it. They’re not going to have that thing leased by the time that debt services come and due, and they’re going to be stuck between a rock and a hard place.
(00:35:34):
I think you’re going to see that in a lot of different markets because what ultimately happened is all that inventory came in, filled up all these buildings, and now all the retailers, their goal is to get rid of the excess inventory. They’re trying to move everything out and shrink their footprint back down because their costs went up on the containers coming in, their costs went up on their debt service of carrying the line of credit they used to buy all the inventory itself anyways, because they keep raising interest rates. Their supply chain costs went up, their consumer acquisition or customer acquisition costs went up. Their costs in their inventory is astronomical.
(00:36:14):
They’re trying to get rid of all of it and then go back down and reduce their footprint down to a normal steady level now that we’re past the pandemic, and now we’re going to be looking at a lot of extra warehouse space. In my opinion, as a tenant rep broker representing the users of space, and more specifically than that, 3PLs, I think their world’s going to get a lot better because a lot of companies are going to move to a more flexible supply chain. By moving to a more flexible supply chain, they’re going to start utilizing more 3PL services. Then, as the 3PL, you’re going to now have a lot of buildings to choose from, and your tenant rep broker’s going to be able to leverage buildings against each other.
(00:36:59):
You’re going to get back into the world where you can go get … Now, I think the rates on buildings have, that floor has raised because the cost basis in these buildings has just gone through the roof. But the flexibility in your leases, that’s coming back.
Mark Taylor (00:37:16):
I think you’re right for every market except Southern California.
Summitt Hogue (00:37:20):
Absolutely, that market is a complete anomaly, and a lot of it is driven by the astronomical demand. Then, the city and the state trying to kill all industrial development because they truly cannot keep up with the demand out there. They can’t build them. They need to add millions and millions of more square feet. But it takes two years just to get through permitting and zoning on a lot of these things when in Dallas, dude, you can have it done in a heartbeat and have a building up and ready to go. Because Texas is just like, “Hey, bring the infrastructure, bring the companies, let’s do it.” They want it all. That’s why Dallas is always the city that over builds industrial too though.
Mark Taylor (00:38:12):
We’ve got what, 74 million in-
Summitt Hogue (00:38:16):
In Dallas?
Mark Taylor (00:38:16):
Yeah, yeah, in the construction.
Summitt Hogue (00:38:16):
It’s now 92.
Mark Taylor (00:38:17):
92 million? Wow.
Summitt Hogue (00:38:20):
Under construction in Dallas, 92 million square feet under construction. That is unprecedented development. It really blows my mind because I’m sitting here going, “Man, there’s going to be a lot of these big box buildings that just sit and they’re going to have to either divide them all up and really start putting demising walls and do 200, 300 and 100 in these 700,000 foot buildings sitting out there, or they’re going to have to hold on tight and just wait.”
Mark Taylor (00:38:57):
We talked about, you said the floor has changed. What are you seeing in Dallas, Fort Worth, for instance?
Summitt Hogue (00:39:05):
Yeah, so Dallas, depends which market you’re in, if you’re in Grand Prairie, in the heart of the great southwest submarket, you used to be able to sign a lease on a building at $4.50 cents a year. Today, you’re going to be in the sixes to take a building there. In some cases, depending on how small or how big you are, if it’s a smaller space, you might be in the mid-sevens
Mark Taylor (00:39:32):
You’re speaking in triple net or gross?
Summitt Hogue (00:39:34):
Triple net. Yeah, that’s before nets. But the City of Grand Prairie has gotten pretty smart. They know the value of these buildings has gone up through the roof, so they’re raising those property taxes as fast as they can. On a gross basis, you’re going to be looking at 9.50, 10 bucks gross on buildings under a hundred thousand square feet in Grand Prairie. But if you go to South Dallas Alliance in North Fort Worth, that’s where we’ve seen a lot of that crazy development. Just an unbelievable amount of development in those markets. In those markets you’re looking in, you can tap into the fours still. If you’re in a really big building, you can get it in the high fours, 4.90-ish range, especially on second gen space.
(00:40:24):
But if you’re looking at a brand new class A building, in South Dallas, I think a really good deal down there would be five bucks a foot, 5.25 in that range, but an astronomical amount of free rent, TI, crazy lease structure, growing schedule. You’ll be able to get all of the above on how you want to structure your lease, and you’ll get rewarded for longer term rather than landlords just … Over the last two years, you’ve been getting stuck with, “Hey, here’s what we’re willing to do. We’ll give you one month free on a five-year deal, take it or leave it. Next man up if you don’t want it.” Because they had all this activity.
Mark Taylor (00:41:20):
Of course.
Summitt Hogue (00:41:20):
If you needed the space, you had take it on the chin and you were doing good to secure the space, to win the building. We’re moving way away from that. I’m excited, man, because I get to take the gloves off. I’m ready to go. I’m ready to go up against these landlords, create this leverage and be able to sit there with my client and go, “All right, we’re going to get you all this free rent. We’re going to get you this growing schedule, this cap on operating expenses.” Man, I’m just going to have a full array of ways that I’m going to be winning and getting my clients the best deals. It’s going to be a good time. I’m excited.
Mark Taylor (00:41:53):
That’s good. It’s ebbs and flows, just like everything out there. The landlords have had a lot of good, they’ve had a couple good years, and hopefully, it switches back. At least I want it to switch back to the tenants as well, selfishly. Are you seeing anybody out there do some really, I’m always curious in who are the people or what are people doing and what are you seeing that’s out of the box? This might be people using, of course, we’ve talked about the class A space that’s getting brought up, but that there’s still a bunch of warehouses that don’t necessarily fit the exact mold of 30 dock doors on a side and 35, 32 clear height, that kind of thing. Just big boxes.
(00:42:42):
But there are a lot of these other buildings that they’re not getting demolished. Tenants are still going in. I think shopping malls are another thing, that’s a lot of built square feet. What’s happening to all of this stuff as people shift to more of these big boxes? Who’s taking the older space and who’s doing, I guess it didn’t have to be who, but what are you seeing that’s clever?
Summitt Hogue (00:43:05):
Man, I really like watching the Saltbox guys. I think their business model is really unique. They’re coming in and buying infill like it has to be. Portal Warehouse is another one. They’re really cool to watch too. Both of them have a very similar business model. They’re buying these infill buildings that maybe looked at as, “Ah, that’s not a good distribution center. It’s a 20-foot clear old building.” They’ll come and either lease or buy these things, and then they make them like a WeWork style building for industrial users, because there are so many people out that have started these little brands, and they’re not big enough for a 3PL yet, but they need storage space. They can’t put it in their apartment or their garage, so they just go lease a little 500-square foot spot in one of these buildings.
(00:44:03):
It’s got dock doors, it’s got forklifts, it’s got stuff you can tap into, so you run a sale, you can take some of their temp labor. They offer that right there too. It’s a really unique model. I think it’s pretty expensive, but the people that need it need it. Man, everywhere that Portal stands up, they’re full. Saltbox, full. They’re really filling a unique niche in the market.
Mark Taylor (00:44:32):
That’s interesting. Are you seeing anybody go after the malls? We’ve seen Amazon take some of them.
Summitt Hogue (00:44:40):
Fillogic, man, those guys are really cool. They’ve also been another one that’s been fun to watch because they have contracts with a lot of these major mall owners and they carve out a little bit of space. It’s not that much space, but they carve out a little space in these huge malls all over the country, and then they operate a little fulfillment center in there, but they serve a lot of the actual tenants in the mall, so like, JC Penney, Old Navy. When somebody places an order for X, Y, Z, like a pair of pants that’s this size, well, instead of it coming from a warehouse, Old Navy’s contracted somebody like Fillogic where they’ll go in and pick the order out of their store and just throw it in a box and UPS and USPS and those companies pick up from the mall.
(00:45:36):
They’re actually using their brick and mortar stores and malls and then using them as their inventory, and Fillogic, they come in and say, “Hey, we’ll turn this into a little micro fulfillment center for you so that way we can pull orders from here and ship it.” It’s already strategically located right next to those, in these big city centers, so it’s a really unique model. I love watching those guys. I think they’re creating a really, really unique place for themselves in the market.
Mark Taylor (00:46:03):
Yeah, I actually think I read where Dick’s is doing that. A lot of these companies have embraced having much more inventory and say, “Okay, well, look, we’ve got the retail, we’re committed to the retail space.” They’ll bring in a team to do exactly what you’re talking about and run their own fulfillment as a supplement to their e-comm fulfillment or their distribution warehouses. It’s very interesting. Also, what are your thoughts on, I think it was American Eagle acquired Quiet, and they’re still committed to running that third … It’s like, yes, they’re going to run their own logistics, but they’re going to continue doing that.
Summitt Hogue (00:46:47):
I think it’s brilliant. They’re spending so much money and fulfilling their own stuff, and they’re making money on the apparel and what they’re selling, but now they’re like, “Hey, let’s turn this into a profit center for us. Instead of it being just a cost center, let’s make it a profit center. I think it’s a brilliant model. They’re crushing it too.
Mark Taylor (00:47:10):
Yeah, they were an excellent outfit to begin with. They did really nice stuff. Are any of the clients that you’re using doing much with automation and of those that are, what are you seeing? What are the trends that you’re seeing with those operators?
Summitt Hogue (00:47:29):
Yeah, that’s a good question. It’s starting to get a lot more affordable. It used to be just totally out of the question. You’re just not going to be able to afford it. Maybe the big box retailers that are putting it in there, they can afford it. But a lot of the 3PLs are like, man, especially smaller 3PLs are like, “I just don’t see the return on that yet.” There’s been a lot of development there in a lot of groups that are focused on making cost effective solutions for guys like 3PLs that can implement it. I’m starting to see it a lot. I’m actually starting to see, I’d say one out of every four or five 3PL clients in the fulfillment space have some automation in their building now. When used to, it was one out of 10. I feel like most of them that I walk in now you’ve got, whether it’s 6 River Systems-
Mark Taylor (00:48:31):
Chucks.
Summitt Hogue (00:48:32):
Yeah, those seemed to be the most common, were the ones where you just have somebody following around a robot and then they just pick, pack, and throw it in the bin, and it just follows it around. Because it’s very simple and they increase efficiency and they create a flow that’s a lot faster. It just increases the amount of volume you can turn out every day. Those are the ones I see the most. But I think it’s going to continue to grow. I think you’re going to look up in five years and you’re going to have some serious automation in a lot of these buildings. I think that’s going to shrink the footprint demand for a lot of people too.
(00:49:12):
Because as they get better, especially in Southern California, out there, you can’t have wasted space because you’re paying so much money per square foot. If you’re going to be in Southern California, man, you really got to use every cubic inch of your building.
Mark Taylor (00:49:30):
Yeah, I completely agree. When you talk to a lot of the automation companies, so whether it’s 6 River, whether it’s AutoStore, whether it’s any of these other autonomous bots and things like that, their return on investment is typically two to three years. I think as a 3PL, if you’re going to be in the space long term and you’re just like, “I’ll sign a five or an eight-year deal or whatever, then it’s fine.” But the shorter deals, the three-year deal, you may find yourself in a position where you’re not going to invest in the automation because as soon as you get it set up and deployed and then paid off, you might be moving it. It’s a lot easier to move the Chucks. You just load them onto a truck.
(00:50:23):
But these systems that are a little bit more complex have to have a big mapped out system or big conveyors or anything. I think your larger 3PLs, you’re going to start to see lease terms increase. Have you started seeing more of that? People being a lot more willing to say, “Hey, used to, we would only do three to four year leases. Now, we want five to eight, even 10-years.”
Summitt Hogue (00:50:44):
Yeah, it’s a weird paradigm right now because rents are so high. Now, they’re coming down. The market across the country over the last 90 days has softened so hard in rents, in the market for industrial space. I’m getting cold called by brokers all over the place now going, “Hey, man, you got anybody for this building?” When used to, it was like they didn’t even … I would send them an email about, “Hey, is this still available?” They would just send me a note back and just say, least or no, didn’t give me even the time of day to explain, “Hey, man, the space is leased.” They just would say leased or no. Now, that same guy is calling me every other week going, “Hey, man, you got anything? I got these three buildings. I’d love to get them in front of your clients, whatever.”
(00:51:33):
Now, it’s just total market shift. It’s incredible. The paradigm though, to your question is, when rents are so high, it was so hard for people to justify saying, “Let me sign a seven or 10-year lease at this rate.” Because one of the main things landlords were pushing and still are trying to push is with inflation, landlords are trying to justify escalations going to 4%. If you’re going to have a 4% annual escalation, you want the shortest term you can, because that adds up. Now, it’s a double-edged sword because the guys in 2018, ’19 that did sign the 10-year leases, they had a steady low rate through all the craziness in the market that we just saw over the last two, three years.
(00:52:31):
The guys that were too scared back then and just signed shorter term leases, and then they had that renewal rule in 2021, they got crushed. Then, those guys at that point were forced to sign a little bit longer term, and they have four and a half percent escalations in some cases in some markets. My point is the fulfillment companies that really are truly going to put their roots down and say, “We’re going to invest a lot of money into this space.” Yeah, they’re buckling down saying, “Let us sign. We’re going to sign a 10-year lease on this building because we’re going to really go for narrow aisle racking. We’re going to have the conveyor systems, we’re going to have the robots, we’re going to have all the above.” They do not want to move that.
Mark Taylor (00:53:18):
No, of course not.
Summitt Hogue (00:53:21):
Those guys are doing longer term. Now, the big bulky B2B crosstalk guys that are just slinging pallets and containers, those guys are signing, they’re still trying to sign two, three-year leases because they could be out of a building overnight. It’s not a big deal for them. They don’t have a crazy amount of infrastructure in there. I think that’s the biggest difference. The guys, the pure fulfillment guys that are doing the investment like you’re talking about, they’re definitely going longer term.
Mark Taylor (00:53:49):
Yeah. Do you have a preference on, because you’ve spent so much time understanding, does the crosstalk guy versus the pure, the really heavy fulfillment person, or a operator I should say, do you prefer working with one or the other?
Summitt Hogue (00:54:10):
Man, no. We’re in the middle of both. They’re very different in the way they operate. We have a lot of pure e-comm clients that have buildings across the country. Then, we have a lot of guys that are the big bulky B2B, 3PLs. I’d say the world of the big bulky 3PL, those are the guys through a recession that tend to do a little bit better because of them offering such flexibility to the major retailers or the groups out there are moving a lot of pallets. I think the fulfillment guys are still going to do really well. But I think in a recession, people are spending a little bit less money on just buying, in general, buying things online.
(00:55:02):
But a fulfillment guy, a lot of times, is only going to take about a hundred thousand square feet or so in each market. Then, the B2B guys sometimes are taking 300,000 to 500,000 square feet. They’re very, very different in their needs, in their specific wants. It’s serving two separate niches in a very small niche. Those are two separate niches in that niche, which is cool. But I don’t prefer one over the other. We serve both very, very well, and a lot of guys do both. A lot of guys are like, “Hey, I’ll take a big bulky pallet deal, but I’ll also take a 10,000 order a month, 500 skew, little apparel deal too.”
Mark Taylor (00:55:52):
Sure. If you were going to sum it up in just a few sentences or thoughts, what’s the biggest change you’ve seen? How has your mental, what has shifted your personal paradigm of this market, of this industry?
Summitt Hogue (00:56:16):
Man. Well, my favorite thing about it is the people. I didn’t know this when I got into it, just how awesome a lot of the people in the supply chain are. A lot of people in 3PL business specifically, they’re just blue collar people that are ground and pounding, building their own businesses. They’re not scared of anything. They’re out there bootstrapping and growing their business, and I respect that so much. I love working with guys like that and helping guys like that. Over the last six years, I think that’s really been my personal favorite thing that I’ve really grown in and seen, is just these relationships that I’ve got with all my guys and they treat me like I’m a brother to them and vice versa.
(00:57:08):
I just feel like it’s a really cool family that we’ve built and are continuing to build. I think if we’re going to talk about crazy things that have shifted just in the overall industry since I started, the demand for e-commerce is, it was on a weird curve. It was on this perfect curve. We all knew where it was going to be in 10 years. It was like it had a really solid projection. Then, COVID hits and you have this entire, think about everybody over 40 that just didn’t really buy things online. We go to the store and we go handpick things out and try them on before we buy them, those kind of people. They were forced to buy online and then they got into the … It’s like Christmas, whenever a package comes to my door, in June.
(00:58:06):
They fell in love with that. I think through COVID, we were on this 10-year projection, it accelerated it, the demand for e-comm by 10 years. But the snapback is happening now where people are wanting to get back out. They want to get back out. Now, it’s really falling again. Then, with inflation and all the other crazy dynamics in the world. But I think it’s going to bounce back pretty quick and we’re going to get right back on the same curve. It’s just going to continue to grow and grow and grow. I’m still extremely bullish on the long term demand for e-commerce. Like you said, using every cubic inch of a building, a lot of automation, and having really fine-tuned supply chains is where things are going to be over the next three, five, 10 years.
Mark Taylor (00:58:59):
Yeah. The anecdote I like to give is that my 80-year old granddad got an Amazon account.
Summitt Hogue (00:59:05):
There you go.
Mark Taylor (00:59:08):
Yeah. Yeah. That backs up your point of people who, he used to have me order for him, “Hey, can you place this order for me and get it sent?” “Yeah, sure, why not?” Then, eventually I asked if he was okay and if he needed me to do anything, he’s like, “Oh, I got my own account. I figured it out.”
Summitt Hogue (00:59:23):
It’s just easier. It just shows up on the doorstep and you’re like, “Ooh, what did I get this time?”
Mark Taylor (00:59:28):
Yeah, absolutely. Well, I guess this is a pretty good stopping place I want to leave with. You’re six years in. If you were going to give your younger self any advice or going to step back in time, or maybe it’s a piece of advice to somebody who’s trying to break in and is in the middle of that grind, what would it be?
Summitt Hogue (00:59:54):
Man, there’s really five things, and I wrote this down the other day in an article, because I was just sitting there going, “Man, if I would’ve known these things and just really … ” I just feel like these things are stuff, it’s things that I’ve learned over the years doing this that have really, really helped me succeed. The first one really is hard work and out focus your competition. There’s a big difference in just working hard, showing up early and staying late. That’s not the key, the key is being the captain and the engine of the ship at the same time and really out focusing your competition and controlling what you can control and do what you can with what you have, where you are.
(01:00:41):
That’s like the number one thing that I would scream at my younger self, because it’s really easy to compare yourself to others and, what are they doing, what are they doing? Seeing people, then your friends, and comparing yourself and you can’t do that. That’s unhealthy. It’s just taunting your growth in general. The second one would be positive attitude, man. You can’t control a lot of things that happened to you in life and you’re going to get knocked down, and life is 10% what happens to you, 90% how you react to it, right?
Mark Taylor (01:01:15):
Yeah.
Summitt Hogue (01:01:16):
I think having a positive attitude is really, really important piece to just overall success. Then, number three, challenge yourself. Because so many people get complacent in life. It’s very easy to get complacent, it’s easy to get comfortable. Man, you just can’t, you can’t let yourself get into that place because when you get comfortable and you’re not really challenging yourself and forcing yourself to grow and become better, you’re either getting better or you’re getting worse. You never stay the same. If you don’t feel like you got better today, you got worse. That’s why challenging yourself to me is such an important piece. Then, just never giving up, man.
(01:01:56):
There are so many times when I was just looking no light at the end of the tunnel. This is never going to work out. I don’t think this is going to work. You can get in your head and tell yourself that, but just truly never letting yourself give up. When you start something, you finish it, you see it through to the end. That’s ultimately one of the most important pieces too. Then, personally for me, I wouldn’t be able to do any of the things that I’ve done without leaning on Christ because for me that’s important in my life. God is in control. I don’t control any of this. I don’t own any of this. At the end of the day, you just got to press onto God, lean on God and give Him the glory and the good times and the bad. That’s it.
Mark Taylor (01:02:44):
That’s five.
Summitt Hogue (01:02:45):
Yup.
Mark Taylor (01:02:46):
All right. There are a couple ways I say it. You talked about relentless, I call it relentless pursuit of forward progress. Just one small step in front of the other. Look, I had a mentor once told me that 10 years, it takes you 10 years to really get in an industry and really understand it. You’re only at year six. I’m excited. I’m really excited to see what the next four hold.
Summitt Hogue (01:03:17):
You and me both, man.
Mark Taylor (01:03:18):
Yeah. With that, it’s great place to start, stop, excuse me. Thank you so much for being here and sharing your perspective.
Summitt Hogue (01:03:27):
Yeah, thanks for having me, man.
Mark Taylor (01:03:28):
I enjoyed the conversation, as always.
Summitt Hogue (01:03:30):
Same here, brother.
Mark Taylor (01:03:31):
All right, man, thanks.