There are very few in the commercial real estate industry unfamiliar with Fort Capital—the firm Chris Powers founded in 2005. Based in Fort Worth, it’s a fully integrated firm that acquires, finances, and manages properties across Texas. Over the past five years, the firm has become known for its deep focus on Class B industrial, while Chris has become a bonafide social media and podcast star.
Chris credits his success to a lucky pivot. But it wasn’t just luck. Chris worked hard and made some really good decisions. In the third installment of our six-part series on real estate industry leaders interviewed at Re-convene 2021, we’ll find out how Chris chose the right market opportunity at the right time and how he continues to make the right choices to keep Fort Capital growing.
Chris Powers’ real estate career stretches back to when he was 17 and got a loan from Countrywide for ‘3% down, 6% cash back at closing’ to buy a rental house near TCU, where he was a college freshman. During his time at TCU, he acquired 12 more properties.
After graduating in 2008, Chris started a leasing and property management business and flipped houses on the side. Wells Fargo gave him a $250,000 line of credit, and the plan was to keep flipping homes near TCU. Plans changed when the crisis hit. Chris started buying foreclosed homes all over the Dallas Fort Worth area. From there, he started building high-end custom homes. He later got into land development and entitlement for several years, where he would assemble unentitled urban land and take the entitlement risk to develop from ground-up. It was during this time that Chris developed a soft spot for developers—and a desire to get out of the development business.
Perfectly timed pivot
Development takes a lot of patience—something Chris admits he does not have. But he does have a passion for real estate and he knew he wanted to stop building and start buying assets again. Chris followed the old adage, ‘take a simple idea—and take it seriously.’ He knew he wanted something that was easy to manage and, when underwriting it, he didn’t have to consider multiple risk factors the way he did with development deals.
He decided to place a bet on the emerging class of ecommerce tenants. His thesis was that if the built world was going to continue on, someone had to maintain it and those tenants would benefit. He started researching which companies were building and storing roofing materials or electrical and plumbing supplies as well as the type of buildings they were occupying. He started looking for plants, warehouses, and distribution facilities because those were the assets he wanted to own.
Ever since, Fort Capital has been a pure play industrial investor. When you look at its portfolio, most of its tenants are companies that take care of or build the built world. With nearly 30 employees, they syndicate on a deal-by-deal basis and have acquired more than $600 million of industrial real estate over the past few years. Everything sits in its own SPV with its own structure and capital partners.
The law of supply and demand
Why does Fort Capital love Class B industrial so much? There’s virtually no competition with new supply. There’s been three billion square feet of industrial built since 2007, and less than 3% of that has been multi-tenant infill. Most major cities lack the required land and, even if you could find it, they don’t want new industrial properties in their city centers. They want to see higher tax dollar, higher ad valorem tax properties. The cost to construct is also prohibitive. And the tenant base operates differently.
If you start a typical business, you might start in a Class B office building and then, as the company does better, you move into a Class A office building. But in Class B industrial, companies that do better don’t necessarily move into Class A industrial because it’s just more space. Unless a business needs higher ceilings or a better manufacturing line, they tend to grow within their existing space. So not only is Fort Capital not competing against new supply, the existing supply in Texas is actually depleting 1% to 2% a year as properties are being torn down or repurposed for other usage.
Fort Capital had a few successes in the industrial space early on, plus they hired a seasoned acquisitions lead who had a decade-plus of experience brokering industrial deals. But were they ready to say that ‘Fort Capital is an industrial company,’ and that’s it? Chris doesn’t recall a definitive conversation, but he does remember that he and Jason mutually agreed that it made sense. The sooner they became a singular-focused company, they would be able to recruit more talent, raise money quicker, get better deals with brokers, and the floodgates should open up.
And they were right. Ever since they decided to focus on industrial, they have seen more deals, they have a better story, they can recruit the best of the best, and they’ve been able to raise capital faster and easier.
Get the word out
Chris started talking about what they were doing in the industrial space over and over and over again to anyone who would listen, and even those who didn’t. Chris beats the drum incessantly—he says Twitter and the FORT podcast have been great ways to get the word out.
One important lesson Twitter taught Chris is that, as soon as you think you’ve exhausted the narrative, that’s when most people are just starting to listen. He often goes online or speaks at events, and those venues serve as an important reminder that people are still excited by the industrial story and they have to keep owning the discussion.
For a long time, Chris says they were focused on developing and building, which doesn’t have a huge asset management component. A lot of it is merchant build where you’re building a home and selling it. They were, of course, involved in managing deals, but it wasn’t something they focused on every day.
They actually have no acquisition people on staff today. You might think that would set them back. It didn’t. In 2020, they had three acquisition people and underwrote 44 deals. In 2021, they had no acquisitions people, but underwrote almost 4x the deals in the first two quarters of 2021 alone.
But they realize the importance of incentivizing staff for the long term. To do that, they’ve implemented a rolling bonus. Nobody in the company gets paid a bonus all at once. Employees get half and the rest goes into a pool, and then they continue to get half of whatever is in the pool every quarter so they are always hungry to keep working.
It’s what Fort Capital calls the abundance mindset. Nobody is successful in business without the backing of a team of really good people; entrepreneurship is a team sport. In adversity, in particular, Chris says you need a team that is focused, and if your employees don’t believe in the vision, motivating them becomes much more difficult. So, they avoid applicants who only want a job and a paycheck at the end of the month; they can find that elsewhere.
Treat investors right
Chris realized early on that they would be able to grow the company much more effectively by creating loyal investors than they would simply by finding great deals, but treating investors as an afterthought. Ever since, Fort Capital has invested in their investors. Today, Fort Capital has 500+ investors and they believe in treating them amazingly well. That means providing them great returns, a great experience, and ultimate transparency. Their investor relations team thinks about the overall investor experience, from how they first hear about Fort Capital to the day they make their first investment to what ongoing reports look like. And Chris says when investors are a focus, good ideas happen and become reality.
Powers always knew he wanted to create something big. He says his biggest fault as an entrepreneur is focusing too much on what Fort Capital is going to look like in 20 years—because every day it doesn’t look like that, it tries his patience. That can create chaos in the office so Chris’ partner Jason keeps him focused on what they need to do today—things that won’t go away—so they can get Fort Capital to where Chris wants it to be.
Chris thinks of Fort Capital as a manufacturer of returns for investors. To do that at scale, they have to pay people well and operate like a real company. In his mind, too many people—himself among them—get into the real estate business thinking about the deals. Nobody ever starts a real estate GP thinking “I’m a business operator.” It’s always the deal guy.
There comes a time, Chris says, when you have to realize you are building a business. At some point, you have to make that decision whether to stay a small deal team and do a few deals a year or do something more. There’s nothing wrong with the former, but Chris decided to do the latter. They were in the red for a lot of years intentionally. They didn’t take on a GP partner because of a fear of being owned by somebody else. They decided they were going to build something big, but do it in a sustainable, disciplined way. By all accounts, they’ve succeeded.