Growing Your Business By Making The Right Decisions With The Right Partners With Levi Benkert | Ep. 183

COGE 183 | Business Partners

 

The CEO of Harbor Capital, Levi Benkert, is this week’s guest on Construction Genius.

Harbor Capital is a hyper-focused class A and B industrial real estate investment firm operating in Texas.

What’s interesting about this is Levi’s journey from a newly married eighteen-year-old who purchased his first home in Sacramento, California to growing a business that has a goal of getting to $1 billion in assets under management by 2030.

He is crushing that goal.

We discuss a development deal that he’s doing with a construction company that you’ll find very interesting.

Think about how Levi frames his deals and the approach that he takes to real estate investment, and how that might influence the way that you look at real estate investment as you have grown your construction company and have these types of opportunities come up.

We also get into some more personal aspects of life and how Levi has benefited from the ups and downs of life, the lessons that he has learned in therapy, in business, and even from having children at a young age, and how that has impacted his parenting style, and the way that he is someone who has been financially successful, coming from a background of little financial success, how that has affected the way he relates to his children and the way that he wants them to think about money and the uses of money.

I know you’ll enjoy this conversation. Thanks for listening.

Watch the episode here

 

Listen to the podcast here

 

Growing Your Business By Making The Right Decisions With The Right Partners With Levi Benkert

This episode is somewhat unique. It is a discussion with the CEO of Harbor Capital, Levi Benkert. Harbor Capital is a hyper-focused class A and B industrial real estate investment firm operating in Texas. What’s interesting about this is Levi’s journey from a newly married eighteen-year-old who purchased his first home in Sacramento, California to growing a business that has a goal of getting to $1 billion in assets under management by 2030. He is crushing that goal.

What’s interesting about my discussion with Levi is how he has grown as a person through his involvement in business over the years through the successes and the failures, and what he has focused on in order to grow a company that not only fulfills himself but also provides a tremendous return on investment for the people who are invested with his partners.

I have Levi on because we want to talk about a particular deal that he’s doing with a construction company that you’ll find very interesting. I would like you to think about how Levi frames his deals and the approach that he takes to real estate investment, and how that might influence the way that you look at real estate investment as you have grown your construction company and have these types of opportunities presented to you in one way or another.

We also get into some more personal aspects of life and how Levi has benefited from the ups and downs of life, the lessons that he has learned in therapy, in business, and even from having children at a young age, and how that has impacted his parenting style, and the way that he is someone who has been financially successful, coming from a background of little financial success, how that has affected the way he relates to his children and the way that he wants them to think about money and the uses of money.

All that to say that you’ll find this conversation very interesting and helpful. I want you to enjoy it and take some takeaways from it. Make sure that you visit Levi on Twitter and also his website. I just what to thank him for coming on the show. It was a great time and I want to thank you for tuning in to the show.

Levi, welcome to the show.

Thanks for having me. It’s exciting to be here.

I’m excited to have you on the show. You are the CEO of Harbor Capital, which is a real estate investment firm. Real estate investing is in your bones and that’s because you purchased your first house when you were eighteen. Is that right?

Yeah. My wife and I got married really young. I was eighteen, and within 4 or 5 months we thought, “We probably shouldn’t be renting.” We walked into a real estate agent’s office. There happened to be a guy there, Brian McMartin. I still remember his name. He should have kicked us out the door, but didn’t. He sat us down and said, “How much money do you have saved up?” At the time it was like $1,500 or something. We had just gotten married.

Neither of us went to college and we’re just starting out. He said, “I know a couple of the programs. It gets you into an FHA loan, but you got to start saving money real quick.” We asked friends and family and figure out what we can do. Within a week or so we found a $105,000 house in downtown Sacramento or Midtown Sacramento. We put an offer in and got a couple of different FHA. It was called the Nehemiah Program. They loan you money. If you keep the house for more than five years, then you don’t have to pay it back.

We sold it a year later. We did have to pay it back but made a bunch of money on the sale. It’s funny. In the very first meeting, we met this guy. He pulled out of his desk a book called The Richest Man in Babylon and he handed it to me. He said, “You are going to need to read this before we buy a house.” I went home and read it in a day. I still remember concepts from that book. It was this life-changing moment.

I know what I was thinking when I was eighteen, but it wasn’t much about, “I shouldn’t be renting. I should be buying.” Where does that thinking even come from? I know people who do get married young, but it is rather unusual. Tell me more about why was it that you and your wife so early were thinking that way. Where did you get that?

We both grew up in not the most functional of households. Getting married young, and we have realized this through therapy, was a bit of a reaction to trying to find or create our own safety early on. We found each other and found it fantastic. We have been married for many years now. It’s an incredible marriage. I’m so thankful for her. We both were looking for safety and companionship in a way that we could build something. For both of us, it was this like, “We have got to get to work. If we are going to do this, we got to do it right.” Our first son was born a year after we got married and we owned that house when he was born in that house. We lived there.

Where in Sac was it? I’m in Sac.

23rd and N Street. I’m sure that house is worth $800,000 now.

Believe me, I’m not like in a super ritzy neighborhood and prices are crazy.

You go into industrial to buy properties with intrinsic value, no matter what the market does. Share on X

It’s insane. We lived there for a year and sold it. During that time, we started two different coffee shops in Sacramento. Those were four blocks down the road. The first one was four blocks down the road. The other one was a couple of miles away.

Tell me the names.

It was called Isidore’s Coffee and Tea at the time. We sold it and then it was rebranded. It’s still there. Every time we go buy it, it’s on N Street and I believe it’s 19, 3rd, 18th and N. It’s still there. It’s funny. I rented an old bookstore and did all of the work myself. I put in all of the plumbing and electrical and built this entire fit-out for this coffee shop myself for about $15,000 or $20,000. I ran that for a year and sold that. I did well with that sale too.

It was real estate from the beginning. I ended up flipping houses for a long time and then ended up buying a house. I bought a house that had some land in an area that was zoned to where you could split that land off and learned the incredible power of subdividing and convincing the city that you can get a new plat map put in place.

As you are going through this journey here, you are starting young. You and your wife got married young. You got kids young. How was the dynamic between you and your wife as you are going through the ups and the downs of that? You are of the same mindset and perspective. How did that all work?

We both joke. We have both been married to three different people over the last 22 years because both of us have changed and ebbed and flowed so much. Starting out without education and there was no inheritance or anything available for each of us, we had to fight our way up from the bottom. There was this relentlessness that I bring. God help her for having to put up with me. I’m always pushing and always going, and continuing to put effort towards creating success relentlessly throughout our relationship. That is both good and bad. It put pressure, but it’s also meant that we have always been pretty well taken care of regardless of the situation.

Beginning with residential, it’s a familiar story for many people. They see the light goes on in terms of what you can do with real estate and you are doing the residential part. How did you begin to move into the more industrial and commercial aspects of real estate investment?

It took quite a while. I will condense a long story. I flipped houses and then I bought one house that had some land and started doing land development. This was from 2003 all the way up to 2008. I was buying undeveloped farmland in and around West Sacramento, and then subdivided it. Do you know where the pyramid building is in West Sacramento and the CalSTRS? I owned about 80% of that neighborhood around there. I owned 6 or 7 full city blocks of land that I had assembled.

I bought an old trailer park and got rid of that. I bought a whole bunch of different development sites there. I learned that I could go in and buy something, get it rezoned, get it changed and create a lot of value there. It’s a fun area. It’s fun to go drive through there now because all of the rezoning that I did stuck. There’s a bunch of nice class A multifamily and condo developments that had gone up.

Are you talking about right on the river there by the ballpark?

Exactly. Right around the CalSTRS building. You go over the old bridge. It’s a gorgeous area. I had 400 lots in that neighborhood that I had developed and rezoned. Some of them I put in the curb, gutter, sidewalk, and everything all the way up until 2008. The market dropped so far and that was still at the time known as a pretty bad neighborhood. Now it’s fantastic. All the lenders were done. They said, “We are not going to lend on housing in this area or in Sacramento.” There’s too much housing. There was so much speculative buying and so many mortgage programs that were available that became not available anymore.

COGE 183 | Business Partners
Business Partners: Therapy and meditation can help you make tough decisions. The ability to be able to just sit down, shut your brain off, and allow it to be okay without trying to solve problems.

 

The Buddy’s Store was right there.

That’s right. The Spigot just got shut off. It was a rough period in 2008 of having to go back and hand back the keys to the lenders on properties and renegotiate with the LPs that invested in my deals. I am so incredibly thankful for the people who had invested with me and how many of them immediately said, “I’m going to become a mentor. I can see what you are going through. This is rough. We’ll figure this out but more importantly, how are you doing?”

I met with a guy who lives in California and flew out here to come to see me. He and I have done probably $25 million worth of deals together. He’s still an LP in my properties now and lost several million dollars in 2008 on my properties. I remember calling him almost in tears like, “I’m not quite sure what to do. What do I do?” I was 26 years old. This whole market crash was a shock to me.

Looking back, I had structured these deals to where they needed the market to continue. Now the reason why I’m in industrial is that I can buy properties that have some intrinsic value no matter what the market does. If my debt service coverage ratio is good, the market can go down substantially and we are still making the mortgage payments and we are still hanging onto it. I can handle these market fluctuations. If you own a bunch of development property and the market goes down and you are not able to build, you have to make those mortgage payments or you lose the property. It’s no fun.

It’s interesting because I hear in there a strategic shift that you made as a result of the shock of ’08 and the lessons learned. What were some of the most important personal lessons that you learned in light of business and the people that you work with?

Long-term thinking and trying to find partners that are going to be the right people and have long-term thinking along with me. It’s funny. I had a situation come up. We signed a new loan on a property that I’m buying. It was a $4.5 million loan. The bank sent over loan documents. A couple of days after we closed, they wrote to me and said, “There was a typo in the loan documents. We gave you six months longer of the interest-only period than we had intended to and that you had agreed with us on. This is our mistake but we want to ask you, would you be willing to go back and amend it?”

Immediately, I send it over. I said, “We are going to re-sign it.” We had modeled for this. We knew this was what was going to happen. The last thing I want to do is screw this guy. Who knows he might lose his job over it. It was a typo that their attorney missed. It was not our intent. That was not the type of loan that we thought we were getting. Everybody happened to miss this one. There are how many hundreds of pages of documents, and stuff like that does happen despite all of our best effort to make sure that doesn’t happen. Typos happen.

It’s funny because we are closing another loan with them. We had a meeting with them and they brought up, “We remember that you did that.” For this loan, we have the ability to go raise the rate on you before we close but we are not going to do that because it matters to us that you saved our butt at a time when you had a chance to screw us. We noticed that types of things that working with quality people who are going to do the right thing even when they have a chance to screw you. I don’t want to get up and go to a business if I’m always having to be concerned that people are going to screw me if they get the chance.

As a young man, it sounds like you didn’t go to college. How did you begin to develop the ability to identify the types of partners that you described? The people who are not going to screw you. As a young person, many times it could be easy for someone sophisticated to take advantage of you. What did you learn in that process early in your career?

Mistakes are the best teacher. I feel like maybe I’m dumber than most and I need to make mistakes in order to learn from them. I remember one of the real early on lessons. I mentioned that I had built a coffee shop with my wife. In the second location that we did, we found one that had shut down and found the guy who had the lease on it, and he was still paying on the lease.

I naively thought that it was probably his branding and that I can do a better job and go in here and revive this old location that was shut down. I say he took advantage of me. He took advantage of my naivety and I thought I could fix it. He had already opened at that location for a couple of years and found that there was not enough parking and there was not enough of an attraction to that neighborhood.

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It was a bad location for a coffee shop. I went in and used all of his equipment and opened up. It only took a couple of weeks to open it up because it was all there, but I was signed on to a lease agreement for it. I took over his lease. Good for him. He was like, “I will wash my hands of this mistake. Some kids are going to come along and try to make a go at it.” I remember that it only took three months to realize nobody stopped by. That location was empty most of the time.

He was an absolute jerk to work with. He was like, “You screwed up. I don’t care. You should have asked me.” I remember feeling this visceral feeling like, “There are some awful people in the world.” To his credit, he didn’t do anything illegal. I was the one that brought this up. If I was presented with that situation and I saw some young kid come up and was all gung-ho about it, I would have sat down and said, “This location didn’t work for me. Let me tell you why.”

There was none of that. He kept encouraging me. “You’ll make it work. You’ll do a great job.” He basically, I don’t want to say con me, but helped me along to this narrative to think that I could make this work. I remember having to borrow money from a friend to buy myself out of the lease and then pay that back which hurt the other location for a while. It was quite a journey and jerks.

It doesn’t sound like you are necessarily embittered by that. You’re like, “Lesson learned. Now I know who I’m looking for and who I’m not looking for.” The more understanding that you get of the business, the more that then informs the decisions that you make.

It’s pattern matching.

You strike me as a pretty enthusiastic guy. I’m speaking as one myself, so I know my emotions can come in. How do you match your intuition and your emotional intelligence with the objectivity that’s necessary in order to make these big decisions that you are making?

First of all, not always. That’s a constant struggle, but the most significant change in my life was several years ago when I discovered therapy and meditation right around the same time. The ability to be able to sit down for 10 to 15 minutes a day, shut my brain off, and be okay without trying to solve problems. I feel like it’s an old Buddhist concept of the disassociation between the ego and the monkey mind. The ego and the monkey mind on one side and yourself, it’s that idea of like, “Who’s talking to you when you are talking to yourself or who are you talking to when you talk to yourself?”

There’s no scientific basis for this but it’s an interesting way to think about the thoughts that bounce around in your head. There is you that is separate at the core of it. That is a fundamentally okay person, and then there’s the monkey mind, which is not okay. It’s the ego which says, “This person is unsafe. You got to do better. You got to get more accolades. You got to have these people like you better.”

If you can somehow learn to try to disassociate those two, I feel like I can both be on my best day an enthusiastic person and excited. I also step back and say, “I’m excited but you are the person that I have seen before that is dangerous, therefore, I’m going to pull away from you. We can have a fun friendship, but I’m not going to trust you with my money or we are not going to go into business together even though I have fun with you.”

You mentioned therapy. What has been your main insight from therapy?

COGE 183 | Business Partners
Business Partners: You need people that are smarter than you in your business. People that’ll help you run analysis, run the spreadsheets, and figure out whether or not you should do a deal.

 

This outside view of myself. It’s almost this ability to step outside myself and look at my actions and see how these emotions that come up sometimes and these reactions are driven by this need deep inside me to be liked, loved, and to have people think I’m special, and then disassociate from that and say, “I don’t need that.” The Viktor Frankl book that he wrote when he was in a concentration camp, Man’s Search for Meaning. He talks about lengthening the space between stimulus and response.

Between stimulus and response, there’s a space in that. That space is our freedom to choose or to make our choice, and then in that choice is our freedom and our growth.

I thought before going to therapy and before discovering this new way of thinking, I thought that I had no choice, but to respond the way that I felt first. It’s getting to the place where you can have a stimulus or have whatever. One thing I constantly struggle with is if I lose a deal. A couple of months ago, there was this fantastic property that we were in escrow on, and the seller came back and tried to renegotiate with me. My initial response was he is attacking me. Deep inside, there was this feeling that I needed to fight. I remember thinking at that moment, “I’m going to lengthen this space and sit with this for a minute.”

How did you lengthen that space? That’s the question I wanted to ask you. How do you get into that space between stimulus and response? How do you do that?

One of the ways that I have learned quite a bit, and I’m still learning is to notice the somatic data. Is it my stomach or my chest? Is there some tightening? I have started to notice this feeling of reactivity and it’s almost the fight or flight trigger. If you are walking down the street and you hear a loud boom, and you look and someone is firing a gun. You are going to respond and you have to. That’s great. In that second, you start to get in a car crash and you reach for your kid. There are some things that your body will do as a reaction where you don’t need that space between stimulus and response.

It’s learning to identify which of the things are the ones that you need to respond to and which are the ones that you need to take a minute. I remember getting an email from the real estate agent, the broker who was selling the property, saying that the seller was being a jerk and playing hardball with us and being unreasonable.

I remember feeling this tightness in my chest and this personal attack and then said, “I’m going to take a day to respond to him. By the next day, I had realized that I don’t need to buy this property. There are plenty of other properties that we could buy. I sent this nice email to the seller and the agent. I said, “I’m sorry. That’s too far. Attached is the cancellation. If you want to try to work with us and be reasonable, that’s fine.” He sent over the cancellation and we were done. We wash our hands and walked away.

One of the things I have learned about negotiation over the years is that being willing to walk away is one of the most powerful tools in negotiating toolbox.

It is easier said than done.

Even being willing to walk away is even more important than walking away. If you can sit in that power of being willing to walk away, you don’t fall victim to chasing that deal as you said. The fact that you could go through the mental process of saying, “I love this deal but this is happening. The term is changing, plus there are a whole bunch of other opportunities still out there, therefore I don’t have to do this.”

I want to go back a little earlier. With your company, you have a number of investors who invest with you. One of the biggest struggles that a lot of construction companies have, people in business in general, is they go into business with the wrong people for the wrong reasons. You’ve got someone and I can think of multiple people in my life who I would consider to be extremely close friends, who I would never go into business with. How do you make that distinction between someone you like and someone who you don’t want to have any financial involvement with?

You should just be good at something. You shouldn't have to tell me you're good at it. Share on X

I feel like I would like to be better at articulating the why, but the reality for me is that it’s more of a gut feeling. It’s amazing how much data we are capable of taking in through body language and people’s eyes darting back and forth. Are they leaning in when they talk? Are they avoiding certain topics? Are they talking about themselves?

The pet peeve that’s bothering me is when someone feels the need to talk about themselves a ton. It’s constantly like, “I’m good at that.” If you should be good at something, you shouldn’t have to tell me you are good at it. One thing that has come up again and again for me is if somebody needs to tell me that they are honest or remind me that they are honest and they probably aren’t. It’s all these little things, and then getting to the place where you say, “I can’t quite articulate this one but I know that I don’t have a great feeling about this person.”

There’s a lot of interesting stuff in there. As time goes on and we collect all of this information and it informs our intuition. That then helps us to make decisions in addition to the objective data that we have. We add those things together and that can be effective. It sounds like you are pretty intuitive in the way that you work. Do you have partners who are involved in your business who are more objective-minded, who can marry up with you, and help you through some decisions like that?

I’m not sure if you’ve heard of the culture index. It’s a fantastic system for grouping different individuals within a business. It’s quite a bit to learn and it’s not the cheapest system, but we are certainly at a place where it started to make sense for our company. We took the dive and paid for it and are going through the team and everybody is taking classes.

You take this relatively simple eight-minute-long test. It’s not even a test. Your screen fills up with words and you click the ones that you identify with. That doesn’t tell you, “Click 3 or 4.” It tells you to click anyone. You might fill the screen with 26 different words. On the first screen are words that you identify with in your current situation. On the second screen are words that you need to be good at in order to show up successfully or to be successful in your place of work.

It helps you identify, “I might be daring,” and click these words on the first page. The second one, you are like, “I need to be reserved and quiet and allow some deferential.” These things that you are like, “I have to be that but I’m not very good at it, but I should be better at that.” All that to say that system is helpful for me because I need people that are smarter than me. A good percentage of the population is so that they are helping run analysis and be perceptive. They are running the spreadsheets for me and figuring out whether or not we should do this deal.

You said this a couple of times in our interviews so far about people being smarter than you or something like that. I have no problem with that at all because I know many people who are way smarter than me. What is it that you bring to the table where people are saying, “I want to work with Levi because of X.” What is that?

I will steal a Steve Jobs quote because I heard it and I have never been able to forget it since I heard it. He said, “Other people play the instruments well, and I play the orchestra.” For me, that’s what it is. I can identify talent within people, shine a spotlight on them, give them the tools and resources they need, and help them identify.

One of the things that I feel like a big portion of the population struggles with is identifying clear goals and objectives and sticking to them. I can take a team of people and say, “See that flagpole way off on the horizon. That’s where we are going. I want us to get there.” It then motivates people to put their head down and do the work and look up every once in a while and say, “Remember Levi said that we are going there.”

That for me is I can find people who are much smarter and much more talented than me at all the parts and pieces. I can keep in my head, “You are doing that over here. This person’s doing that over there. We are going to come back together and we are going to make this and we are going to head to that point.”

I heard two things there. Identifying the end goal, but then also identifying the talent within different people to put together the team to achieve that end goal.

COGE 183 | Business Partners
Business Partners: Integrity can show up in construction. Don’t just walk around the front of the building and look at what the front door looks like. Go around the back and see what they did with the gutters.

 

The downside over and over again that I have and something I constantly need to work on is I will get people to burn themselves out. Often the feedback I will get is, “I’m so excited about this. I’m so happy to be a part of this team. I find myself working at 2:00 AM on Sunday morning because it feels so fulfilling to me to be a part of this.” I have had people burn themselves out or almost even start to resent me. That’s something I’m constantly working on. I’m trying to dial it back and say, “Make sure you spend time with your family. You don’t need to push that hard. It’s okay to go paddle boarding in the afternoon if you need to.

I have been thinking about this quite a bit. I don’t know if you’ve heard of the Book of Ecclesiastes. It was written thousands of years ago, but it’s tremendously modern. There’s this one passage that says, “Better one handful with tranquility than two handfuls with toil and chasing after the wind.” I have been thinking about that one. We have got two hands and it’s okay to fill up one of them with toil, but then what are you doing with that other hand? It’s interesting.

If you read the whole passage, on the one hand, it condemns laziness, but on the other hand, it condemns having two hands full with toil and chasing after the wind. There’s this balance. This is thousands of years ago, and it’s talking about work-life balance thousands of years ago. Give us the 30-second snapshot because there’s a particular topic that I want to get into based on your business. Give us the 30 seconds on Harbor Capital.

In 2019, I sold a multifamily development company that I had built. I was building apartment buildings internationally. We were renting them to the US government. Wherever there was a US embassy, in a country where housing was hard to find, we would go buy land and develop an apartment building there. When I sold it, there was a significant pipeline of properties.

The typical size is a 125 to a 150-unit apartment building. We had a significant pipeline of projects all over. It’s mostly in West Africa or East Africa that we were building. I sold that in 2019, and then took a little bit of time off when the pandemic hit trying to figure out what was next. I realized that of all the different properties I’ had been involved in and for sure it was real estate, there’s no question. I’m real estate through and through.

For all the different properties and investments that I have been involved in, I despised the ones that you had so many people chasing them. For instance, you go try to buy a house in Austin. Even right now when the market is softening because of debt a little bit. You still have 10, 15, and 20 on a property. I don’t want to be a way for the next greater fool. I don’t want to buy something at the top of the market and hope the market keeps going up. I want to buy something where there are not 50 people chasing it. That’s just deep value good property. Industrial, by far and away, ticked all the boxes for me of what business I wanted to build.

It was one that I could become an expert in another. There were not very many other experts in it. I live in Austin now. I could drive to Houston, Dallas, and San Antonio from Austin and be home by dinner. A ton of opportunities have been overlooked because a lot of sellers are older and maybe bought a property several years ago. They don’t know what it’s worth and undersell it all the time. A lot of the value-add that we are doing is buying mispriced assets or misleased assets. That’s one of the big things.

We bought a property. It had a tenant in there. The tenant was struggling financially. The property was generating $301,000 a year in NOI after all the expenses. We went to that tenant and said, “Do you want to cancel your lease?” We know we can rent it for more. Their business was struggling. They agreed on a couple of months to get out of there. While they were getting out, we found a new tenant. We signed up a new tenant and it’s $452,000 a year in NOI now. We paid $4.2 million for that building. It’s worth $6.3 million or something like that now. All that happened within five months of ownership. That’s a perfect example of the value that’s just sitting there. It needs a little bit of hustle to extract that value.

You have a particular project that you are working on at the moment and it’s in conjunction with a construction company. Can you describe that a little bit for our readers?

Once we close the projects, we have an escrow. It will be past $100 million in assets under management. As we are growing, the thing that’s growing the most is our access to capital. We now have a thousand LPs on our list. Many are doing their 3rd, 4th, and 5th investment with us and calling us up and saying, “I want to allocate more. If I give you $1 million, where could you place it?”

We are trying to look at what are the most sustainable ways to grow. You and I talked about this silly little mantra that we have in the company. It’s by ReFi die. That means we hate taxes. In order to buy something that you are okay with that concept of ReFi or sometimes 1031 out, own it forever, die and pass the asset onto your kids, it has to be a top-quality asset.

Be able to buy something that you're okay with, refine it, own it forever, then die and pass the asset on to your kids. Share on X

While there is most definitely real estate to be had in the market, we’re finding we have more capital available than deals. We don’t want to go down the market and buy trash that we are not going to be happy owning. Even if it has got a $10 million cap, I don’t want to own crappy properties that won’t handle a downturn well. We started to take a hard look at what would going upmarket be like. If you go look at class-A industrial buildings on the market, you are going to be competing against all of the big institutional players and their cost of capital is cheaper than ours.

REIT has access to extremely cheap debt, and they have got a bunch of money that they’ve got a place. It didn’t make sense for us to lower our returns and say, “We are going to the middle of the fairway. We are going to buy and return 4% of your money every year.” We are still value-add investors. We want value. We started a conversation with a contractor. They are called the urban companies that are based out of Houston.

They are a well-known industrial contractor. They did $350 million of industrial space. They are a contractor through and through, but they happen to also have a couple of lots that they had purchased off-market through some relationships that they have. They were sitting on saying, “We’ll do something here down the road.” We worked out a plan with them to build two different industrial parks and we will buy them upon completion.

The price that we are able to buy them for upon completion is substantially lower than their “market value” at that time. Properties are trading in the area. Owner, user properties are trading at about $175, even $180 a foot and our going in price is above $130. We have the opportunity to come in. We are doing this structure but we are basically giving them a bunch of money upfront to use as the collateral for their construction loan, and then they are building the building. We are not going to own it until it’s complete. We hired a great law firm and went through this intense background check. The thing we heard over and over again about Don, the owner of the urban companies and about their team is that these guys keep their word. They deliver products on time. They are of high quality.

Tell me about that because it’s so interesting. For folks that are in construction, there are so many opportunities coming their way right and left for developing land or constructing land, getting into the kinds of deals that you are talking about. What did you look for in a contractor when you were considering this particular opportunity?

Much of it was integrity. Integrity to me is seen in a few different ways. I talked to people who had buildings that they had built by the urban companies, and what they said is similar to what we talked about earlier. We had something we missed in the contract and the urban company made it right. They came back and said, “We both had this intent. The contract was written wrong and we are going to fix it.” That to me speaks of integrity and that these are the people who can do what’s right.

The other thing is integrity can show up in construction. I don’t just walk around in front of the building and look at what the front door looks like. We go around the back and see what they do with the gutters when they go into a drainage swale in the back of the building and saw the attention to detail. All of the water runoff situations were handled correctly. The paint lines were taken all the way down to the edge.

There’s one little detail. They do tilt-up buildings a lot and they take the gutters and they recess them into the concrete. They form the tilt-up forms with a channel for the gutters to run in. It’s about a 2.5 or 3-inch inset that the gutter goes into, and then it ends up flashing. It has a nice look to it. In my mind, it did a better-quality product. It’s not this gutter that’s screwed into the outside of the building.

You are describing something more than just looking at a spreadsheet and penciling out the numbers. It’s looking at the work that’s being done and drawing conclusions based on the quality of that work. Is that something that you have an eye for yourself based on your experience? It sounded like when you were young, you were doing quite a bit of construction yourself.

I would say yes. I do but then also just an incredible team. It sounds like you interviewed Antonia. She is our chief operating officer at the company and also has multiple billions of dollars’ worth of experience as a construction manager and can bring an eye to the table. Clint Ivy, who’s on our team as well as has built all sorts of different projects throughout his career. When we all walk in, there are a lot of experiences and we are able to pick out what’s quality and what corners were being cut.

Where do you want to take a Harbor Capital? What’s your goal for the business?

COGE 183 | Business Partners
Business Partners: Teach your kids the value of money. Have the need to raise kids who are able to handle a lot and take good care of it rather than just get a lot and waste it.

 

When we started that flagpole out on the horizon for me that I sat and started talking to the team when we started to hire people, it was $1 billion of assets under management by 2030. We are going to get there a lot sooner than I thought. In our first year, the plan was to buy $5 million to $15 million and we are closing in on a hundred already. We need to set a new goal in terms of scale. It’s not that I’m sitting here saying I’m only motivated by money. I heard a term that resonated with me. I’m someone who’s coin-operated.

It does matter to me to put points on the board to be able to win and to be able to take good care of my family. I do want to build a family that is able to steward generational wealth, and then I want to leave a good bit of generational wealth for them to be able to steward. Even if that’s in the form of trust that pays for schooling multiple generations down the road or something along those lines.

I want to be able to teach my kids to be able to steward assets and wealth well so that they can teach their kids to do that. For me, that was one of those putting a stake in the ground and saying, “I’m going to do this differently. I’m going to be able to build something that lasts for generations.” It would be the start of something that lasts for generations.

Let me ask you about that. I’m curious because it sounds like you came from a challenging background.

Both my wife and I grew up in situations that were challenging.

It sounds like you’ve been able to build a relatively stable environment for your children. When I say relatively, I say that because I don’t know you.

I would say I have to point to my wife on that one. The stability.

Here’s my question. I can hear in you a drive that was there from a very young age and a lot of people who become successful in business and build businesses come from backgrounds which are not necessarily privileged, to begin with. As a parent, how do you instill in your children a work ethic and a perspective of non-entitlement even though they have a background where perhaps they are not going through any of the stuff that you went through as a kid?

We don’t just hand our kids very much. One thing that I’m a big believer in is I want our kids to have autonomy. When they turned sixteen, we buy them a car. It’s relatively nice. We bought our daughter a RAV4. For some reason, I have this fear. I have seen multiple situations where there are teenagers in my kid’s high schools that were killed.

You look at it and it’s like, “They were driving a 1992 Honda Civic. It wasn’t a safe vehicle. Part of my heart aches for those parents, and the thought that “What if I spent a little bit more and they had airbags.” When you are learning to drive, you are not as safe. I don’t care if you are a daredevil or not. It’s to say, “When I was that age, I was not a safe driver.”

To me, there are some basic things that I feel very comfortable helping my kids out with, but I don’t feel like we are over the top. For instance, we have a son who is going to be a senior in college. We sat down with him at the start of his college career and said, “We are going to pay for everything. Give you cash and everything in year one. In year two, you are expected to go have some job to start to supplement that income and work. We are going to stop giving you pocket money. We’ll still pay for rent and everything else.” We have tier the system down to going into his senior year, he has two paying part-time jobs. He’s helping people like he does this program where he helps people write reports and things for him and charges them for writing assistance.

The stewardship of money is more important than the money itself. Share on X

He has worked for a political action committee thing and gets paid for that. All these things that he’s doing. I’m so impressed with how he’s stepped up and had been able to become increasingly productive. I remember that first year. Even my wife and I talked about, “I don’t know if he’s going to make it. Does he understand that we are serious about this? We are going to start to taper this off,” and so he did.

Every summer, he has been able to find a job, work and builds up. He’s one of the few who are going to graduate from college with a sizable savings account that he has been able to build up through college because he’s been working so hard through college to be able to put money away and have this feeling of, “I’m on my own after this.”

Do you want your kids to come into your business with you?

I have no preference for that. Everybody is different. If one of my kids did, I know which one it would be. I have got one kid who asks me lots of questions about the business. Whether or not she does. I don’t know in the future. My oldest son is extremely interested in politics. I don’t think he ever would be interested in the business.

I see what I’m passing on to them. The most important value is stewardship. First of all, be a good person. When it comes to money, it’s the stewardship of money that’s more important than money itself. I want to raise kids who are able to handle a lot and take good care of it rather than just get a lot and waste it.

Whether or not a lot of what they get comes from me, I think good financial practices attract wealth. You get more people that trust you with money. Early on in my career, I remember it being so hard to raise money. We have raised money on a deal and we have stopped doing it this way because I have got some feedback from investors that it’s a little bit too intense. Intense is too much of a cattle call, but we raised over $10 million on a deal and it took nine minutes.

There are many investors who have said, “I trust what you are doing. We understand. We have seen your systems. We have gotten returns from deals that you own already, and we love these returns. We want to keep doing this.” We have started to roll out to a smaller subset of our investor group every time and stop when it’s full so that it doesn’t create this sense of urgency.

You’ve told us a little bit about your business. Give us a little bit more about how we can get in touch with you, who you are looking to work with, and all that good stuff.

We are class B, sometimes class A, and increasingly more class A industrial in Houston, Austin, Dallas, and San Antonio. We are hyper-focused. We know what we know and we know what we don’t know. We don’t touch what we don’t know. We love geeking out on buildings that present some opportunity. We got a new one in contract that I’m extremely excited about. It’s a vacant building that has so much potential to create good returns in the long run. We love things like that. It’s a hidden gem of an opportunity. We have got five people on the team. As I said earlier, we’re approaching $100 million of assets under management but continue to grow that. We are deep value add.

I have heard this saying before, “You can’t outrun a bad basis.” Meaning if you overpay for a property, you overpaid. You can’t do anything to fix that kind of stupid. For us, we would pass on hundreds of deals before we go into something and say, “The price per square foot makes sense on this one.” When we buy existing, we buy below replacement costs. We are doing two different industrial parks where we are buying those pre-constructions.

First of all, because of the partnership that we have there and the fact that he’s been great to us and leaving a good bit of money on the table for us to extract value from those buildings long-term. Those were in Katy, Texas which is growing quickly and has almost no supply on the market. We did a survey and we went and relooked at all the comps again, and there was one building on the market in that 10,000 to 25,000 square foot space of any type. Only one building met the criteria and it was listed for 15% or 20% above the base rate that we have put into our financial model. That was encouraging.

COGE 183 | Business Partners
Man’s Search For Meaning

What’s your website?

HarborCap.com. I’m on Twitter a lot talking about stuff and putting my foot in my mouth often, @LeviJamesHere is the handle on Twitter.

Last question. You moved to Austin, what’s the one restaurant we need to visit in Austin the next time we are there?

There is a place called Suerte. That is fantastic. It’s this interior Mexican food, but they import all of the corn that they make their tortillas and different things from different parts of Mexico. That’s our spot. My wife and I go there as much as we can and never can get enough.

It’s on E 6th Street in Austin.

It’s the spot.

You’ve been very generous with your time. I appreciate you being willing to go to certain places that perhaps we hadn’t talked about at the beginning of the interview. It was a good time and I do wish you the best and continued success to you. Thanks very much for your time.

Thank you.

Before you jet off, I want to remind you that one of the things that I help my clients with is when you promote a project manager into a project executive role, they go from being hyper project-focused to then having to shift to building a team and being more people-focused. They can often struggle. It’s at that point that they need an outside voice to help them identify the goals that they need to achieve as someone in a new leadership role, the obstacles that are in the way to them achieving those goals and how they are going to overcome those obstacles. That’s exactly what I do with my executive coaching clients.

If you are the owner of a construction company and you have someone in mind who you think would benefit from an outside sounding board, an experienced leader and mentor who can help them with the challenges of being in a new leadership role, reach out to me on my website, ConstructionGenius.com/contact. You can fill in the information there. I will respond to you within 24 hours, and we can have a short ten-minute conversation about if or how I can help you in your current environment. Thanks again for reading. I will catch you on the next episode.

 

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About Levi Benkert

COGE 183 | Business PartnersLevi Benkert is a proven innovative business leader with 20 years of experience in strategic real estate related business development. Levi has leveraged his skills to identify unique opportunities, maximize growth, raise capital and create sustainable vision for companies that he has founded and led. Levi has bought, managed and developed over $400M in real estate properties in his career. Levi is great at building teams who are aligned around clear objectives and a shared passion for building a better world. When not doing due diligence on another industrial property Levi can be found on a paddle board in Lady Bird Lake in Austin with his wife and their 4 kids.

Levi can be found on Twitter talking about real estate @LeviJamesHere