Industrial Real Estate is Expensive ($18,000,000!) 

I'm all for Wyrmwood buying up a huge parcel of land and building a massive custom facility on the condition that that loading dock door remains tiny. I am *NOT* about to give up seeing them ram giant pieces of machinery through an opening that was built for Smurfs.

The big problem with moving to another site is potential loss of skilled employees due to shitty commutes. Employees generally aren't as mobile due to built up personal/financial ties to an area.

I love how Doug is asking "am I dumb?" and Frank is nodding enthusiastically behind him.

That empty Sam's club sounds like a quality place to set up. Wide spacing. Concrete floors, giant parking lot, big shipping docks.

Another soft cost to consider is the inevitable amount of downtime that comes with moving your operation. It's going to take time and resources to move all your equipment, get it all setup, recalibrated, deal with all the issues that comes with. A day of zero production is a real cost, multiple days or weeks can be devastating.

i mean if you are buying land to build a new facility, i am expecting a Wyrmland theme park as well to be honest xD

If you do build *or* buy, look into overbuilding/buy with the ability to partition the space up and lease out the part you aren't using right then. Allows for later expansion, and might give you another revenue stream in the meantime.

I see Frank and I know it will be a good episode

Doug is pitching to load up on debt to purchase a depreciating asset at the top of a real estate bubble when rates are skyrocketing. Might want to get a second opinion.

As someone who got his Bachelors in Economics , I have to interject. Doug , I love you man, but many of you opinion on inflation are misinformed. 1.THE GOVERNMENT DOES NOT WANT HIGH INFLATION. The government is actively trying to slow in inflation. The Federal Reserve (The big government bank that controls the money) is actively try to combat high inflation. High inflation let unchecked leads to a decrease in purchasing power for the average American. Federal politicians usually get voted out if inflation remains high. There is a direct political incentive to keep inflation in check. Around 2% inflation is the historic target. 2. The 8.4% CPI number is Headline CPI. Headline CPI has a history of being deceiving because it includes Oil and Food in it calculous. Oil and Food are notoriously more volatile than the rest of the economy. Both of those commodities have risen dramatically from the War in Ukraine. Unless another major disturbance happens, the prices will become more reasonable overtime. Core CPI excludes oil and food. It was around 6.5%. Still High but, nowhere near the 10% Jason was suggesting 3. Your synopsis of how markets react to high inflation is mostly correct but, incomplete. Both Extremely High and extremely low inflation is bad. Extremely Low rates of inflation incentives people to invest more money into riskier assets for higher returns. This primes the economy for market bubbles. Once the bubble pops it will lead to recession .

Another thing owning gives you is the property owner can't evict you if you own it. If the property owner dies and their kids decide they want to demolish and build or w.e you can lose everything.

I think having a new facility would be better, so long as you have room to expand for more machinery, to produce new products and existing products faster.

Frank is my favorite character.

Have you looked at your current lease and figured out how much it would cost for you to leave the current property? Turnover conditions could be a huge cost if your current lease sucks.

I love how doug asks if he's dumb for wanting to invest in a building rather than in anything else and frank is in the back there like "well..."

Ahhh yess, it's instantly a good day when a Wyrmwood video drops

I think moving to a new facility will be a logistical nightmare in the short term; however, it can be a great opportunity to have the building you want that you own in the long term.

God this is so interesting. I love seeing these little insights and behind the scenes actions that affect a business.

To be fair an $18M construction costs isn’t bad when it’s all in after the cash contribution. Any bank will lend you up to 80% of the cost to build and then let you add the last 20% in cash. SBA backed loans are a great idea to cover that, but they’ll also want to look at guarantees from the owner. Any bank will allow you to add the current rent back to the performance (EBITDA) of the company as means to cover the debt service of the mortgage. But you’ve also got to be consider any other financing needs such as equipment loans/ lines of credit. The goal should be for Wyrmwood to aim for a 1.25:1 debt coverage ratio - or 1.25 of EBITDA to every dollar of income. But this is only when you’re property is built and stable (complete) since it will mostly interest only during the time it’s being built.

I would say now is not the time to look into buying property or building one as all the prices are jacked up. I'd sit on this idea for a year or two and see where things shake out.

I like how Doug only talked about debt and cash and left out investing that money somewhere else. Land can be an investment, but right now prices are inflated so it may not be the best investment. Also, you can invest money without going in debt... which is what Frank was trying to point out. Also the one question no one asked was how much it would cost to move all your current equipment or get all new equipment. That would be a huge one-time cost that may make it not worth moving.

Dale has so many connections lmao. My mans Linkedin must be stacked lol

There's one thing you have to worry about with inflation and debt. Interest. Unless you have a contract stating you have a fixing, unchanging interest rate, your debters are going to mark you up for the difference by jacking up your interest so they can still make money off you.

Frank! You know it’s a great episode when Frank is in the house.

IF the building you're in is having you shoe-horn everything, it would be beneficially to see 1) how expensive it would be to add features you want/remove problems and if it's even possible from a regulatory standpoint (eg. add loading docks, parking, etc.). Since you've already put so much into the property already. 2) how expensive would it be to purchase and renovate an existing building (especially considering you'll need to redo nearly all the renovations you've done to the current building). and finally 3) compare it to an estimated cost to design, acquire land, and permits for a new building from scratch. I _suspect_ option 2) is the cheapest option, but I really don't know for sure.

As always, Dale saving the day!

I'm not gonna lie I'm selfish. I want you guys to build your own facility. Imagine the amount of wyrmlife content.

Build your own place. You can customize it they way you want without having to settle on the few choices that only meet part of your needs. In addition, if you build it large enough, you can lease out part of your building to other companies and make money that way. Also, look for places outside of the state (come to Delaware). If you can find a place where the taxes are cheaper and has better access for transportation, that may work out for you.

Just my 2 cents, don't do a 5% cap rate (20 year return on investment). I am more conservative and do 10 years, but I can see stretching to 13 or 15 years (about 7% cap rate)

Build to suit a 150k sqft new building in Myles Standish. Get a 50-80 stall parking lot, 8-12 bay loading dock, exterior dust collection, better office and conference spaces, plus one huge door for new equipment to be delivered through.

Doug. I (for another week but ill still recommend them) work for a heavy commercial/industrial architecture firm out of Baltimore who specializes in structures of the scale Wyrmwood needs. If you want to actually discuss the process and costs of building from scratch, id be happy to put you in touch with my boss

I love just seeing Frank's reactions to all of it in the background.

"Should we stay, or should we go?" ; Go, or stay, do what helps you guys make more money, make more product, make more types of products. But, if you do build a place; think about adding in a learning workshop to help kids (highschool?) to learn the wood working trades as well as the g-code trades. You guys would have an amazing impact, and I believe the inflation dynamic you are discussing is going to lead to a lot more US based companies and in the US, we do love our wood. Wyrmwood 4 Life!

Fun times. These are the decisions that have decades of impact. Love being a part of these discussions.

Call me crazy, but - maybe a nice phat WORKER bonus??? Company is doing well, everyone gets a cut.

So when you leave the building, do you remove the hardware you put in such as the electricity? Or do you get any compensation from the owners leaving it in? I mean, you made huge improvements where they can use that as selling points to another renter or as justification for raising rent rates.

There are better investments to make with the amount of money it would take to build a warehouse. The ROI on additional tools, promotion, personnel, etc are so much higher than a warehouse whose increasing value is abstract until actualized with a sale in a large number of years.

I think you don't worry about moving or building unless the current space can no longer accommodate growth. When the time comes for you to rent or buy an additional property to expand, then you consider building something new that can replace existing and cover expansion. If you wait until then it isn't just "does the new mortgage cost as much as our current rent", it's "does the new mortgage cost as much as our current rent plus a new building's rent".

Started looking through the videos as I am scheduled to get my new table early next year. As someone who has been analyzing commercial real estate for the past quarter century you are barely scratching the surface of costs to build from the ground up… it will be interesting to see where you landed.

Excellent episode!! Thank you yet again for including the community in these behind the scene''s decision making and brainstorming! I can't get enough of these videos!

As Doug said, this is complex. 1) Assuming you're going to build to suit, how long will that take? 2) How will commutes change? 3) How will delivery routes and shipping routes change? 4) How much is power and water at the new site? If the building is cheaper but power is expensive, you might be taking a big hit because of all the power you use. 5) Insurance was mentioned. How will that change? Better building materials might mean savings in operating costs. 6) Is there any grant money available for building a commercial site? Since you buy local and hire local where possible, there might be a tax incentive to build. 7) Do you even like your landlord? Tenants will often move to a new site just to get out from under a crappy landlord. 8) What about owning your OEN commercial space to rent? I know there are lots of small shops in your complex...would any of THEM be willing to come with you? You build more space than you need and rent the extra out to other businesses.

As a mechanical engineer/project manager that builds high stack shell warehouses on the west coast definitely consider oversizing the property versus what you think you currently need (rent out the extra space). Current design to construction completion period is approximately 20+ months typically. Unfortunately, current construction is drastically different than pre-corona. Costs of materials is slowly coming back down but are really high, and lead times on material (especially steel/roof construction framing and major equipment) is extremely long (14 months roof framing/steel, 9 months major mech/elec equipment). The plus side is that the time spent in design phase hasn't really changed much (approximately 4-6 months) so hopfully construction rebounds in the time it takes you to figure out what you want.

I love videos like this!! So fascinating to watch and see the business stuff like this being discussed!

Come on down to the eastern shore of Maryland. Apparently shipping rates are so much more cheaper here, the store I work at had to fulfill online orders from Philly and surrounding areas at Christmas time because the company realized how much cheaper it was to ship. My fulfillment hours tripled this past holiday season.

I've heard this be explained so many different times and never understood it until Doug did his thing. I now understand the logic behind wanting debt over cash

Me throughout so much of their conversation: "Well that's not how that works"

Man, I can't wait for the building arc

Why not just invest into more machinery? Jason said it himself, the cnc is an asset that generates profit. Buying more tools and machinery would generate profit now as opposed to a building that generates equity slowly over time. Especially now with MGT 2.0 and Sit Stand Desk coming up.

Another way to look at the cost / benefit analysis of a new property / expansions the is the marginal cost: how much would it cost you to build the next 10k sq. ft. at each site? Because you not only want to replace what you currently have, but want room to grow. So if current property is $500k/yr and you can get more at $5/sq. ft. at what size of a brand new facility is it worth it. If a new building comes to an equivalent $800k/yr, but you get equity, and the process flow is better, and better access to the site, those little thing add up in the intangible safety/quality of life bucket. Major assumption is that the capabilities of each locations are the same (ceiling height, electrical hookups, ease of access for trucking, layout restrictions, building health, etc.), because you be interested in paying $1/sqft if the ceiling doesn't leak, its more energy efficient so your utility bill is less, and there's no asbestos so you can configure and renovate to your hearts desire. Also don't forget the workforce - are they happier with the new location (cooler places to live, closer to home, better lunch spots other than poutine, etc.)

Build to suit, build sit stand desks, profit Also help employees with potentially moving if they want to scoot locations

In 10 years, the property you build will be worth more. In my mind based off the numbers you gave, the choice is easy. Get some land, build a warehouse that works now and is prepared for future expansion.

If you do decide to build your own place, central PA (Harrisburg, Scranton, Allentown) is very good. Convient access to major roads (80, 95), cheap land, and about an hour away from major cities.

The cost of moving every one of their machines to a new location would be insane and cease production for a long while.

I think the most interesting thing now would be to know how long it would take all machines from one facility to another and how much that would cost.

That looks like the beggining of an incredibly interesting series / season of Wyrmlyfe

While I do feel it could be an attempt to lead customers in a "guilt trip" or "understanding of life" direction, I greatly appreciate the fact that they post parts of the daily company life.

You kinda can't compare Wyrmwood to the way Amazon or Wal-mart do things since they are so big that they have bargaining power with basically any level of government they have to deal with. All those exemptions and tax breaks add up. Also the not paying a decent wage to their employees thing too...

Yeah, inflation's crazy. I bought a place in 2020. Now, my house is worth 30% more than the sticker price. My net worth dollar amount increased more from owning/maintaining my house than it did from working 40hr/week.

I think you should take your modular concepts to heart and build your own facility. But have the architect design it with modularity in mind, such that it can be easily expanded if/when the company grows.

Ok, ok, hear me out....Northwest Arkansas. Good quality of life in the Fayetteville/Bentonville/Springdale metro area and lots of infrastructure already in place while still having lower CoL.

Dudes I love these and I love mosses. I want to become a business owner. Mosses is a mad man but a genius.

Honestly think building to suit would be the best option as long as you futureproof. Figure out what the next 5-10 years look like and build as big as you need to not have to expand later, but make sure you have enough extra land in case the need arises one day.

Inflation pushes risk that’s true, but risk then pushes safety, a 30 year mortgage can generate immense wealth, but only if you keep it for significant fractions of that time. If this woodworking business can no longer source wood or tooling, then it won’t matter if you have a “good “ debt to capital value , you will just have debt and a harder time paying it. I also push a little on the simplification of inflation here, becuase less than 10 episodes ago you announced downsizing because of inflation.

Seriously, no one is going to comment on the unique character that is now Wyrmwood's real estate broker?

Not sure how it works in the states but where I'm from leasing is normally better because your lease is wholly deducted from revenue where in a purchase you're deductions are less.

Wyrmwood, the promised land. Seems legit...

All of the business talk in this episode went entirely over my head lol. All I took from this was that Moses is exactly the kind of guy Wyrmwood should be working with; he matches the energy of the company well lolll. Whatever you guys decide I hope it works out!

New segment. Wyrmwood presents-Dougconomics.

Have you looked in NC? A big furniture company just shut down. Factory and workers up for grab.

I have to say this, not that it really matters, but because it's really bothering me. Your real estate broker said an acre was 43,750 square feet but it's actually 43,560 square feet. I'm a forester and we use that value in a lot of calculations so that's where I'm coming from.

I don't know why this stuff is so entertaining. This is like super boring adult stuff but it fascinates me.

I would recommend looking at pennsylvania for a new location, I don't know the laws on manufacturing facilities. I just think it's good to try keep a large scale business localized to cut down on communication delay and the cost of shipping between locations. But what do I know I could be total wrong

If you guys ARE looking at other states, come take a look at Idaho. It's a dry climate in a highly conservative state, which is always good for businesses.

Put a million into Bitcoin. Put another million into UST and stake it for 19.5% APY using Anchor. And get mortgage to buy land and build new site.

The Broker reminds me of a gentle, wholesome Pixar character.

Diversify! Wyrmwood could do both. You guys could put a down payment on a new building and buy into the stock market. Should something happen to the primary business you can sell off stocks to keep it afloat or purchase new equipment if needed. The stocks could also be used as a break glass incase of emergency account. They can also be used to pay taxes at the end of the year. Various options. But a building is limited in what it can do for you.

Everything in this country is expensive right now, industrial real estate is nothing compared to the price of gas lol.

So our office moved to less Sqft at a point to save $ on rent. The move broke a very expensive printer. Somehow insurance only covered so much. Some saved rent money got sunk into a new printer, much more lost in the time everyone sat waiting for a new printer. Just thinking how costly it would be to move what you got. You can't move everyone to a new place. Especially since you relocated some of the more flexible workers to PA. The best option is to buy land with room to grow. Develop new product lines (expand prophecy or WW home stuff) with the machinery you can move there then as commitments for MGT are wound down. I don't reccomend buying the current factory. There are probably some less known hastles (other tenants) and limitations of the current location (...historical building... no room to expand to) WW is not wanting to get into the business of managing a property with assets you can't use.

Can't you ask the current property owner what it would take or cost, for you to be allowed to add to or rebuild your current building?

Come to Syracuse, NY we have plenty of old factories and warehouses for sale. Hell I'm sure you can buy a mall or two at this point.

Build in southern NH. I would say Maine but I don't know if you could find enough staff.

Someone tell Doug I will design a poutine cafeteria into a new space and I’d gladly do the architectural work for a steep discount and some tables. A built solution is going to be better long term. It can be designed and built to strategically plan for expansion and growth for you guys and you can drive the layout to perfectly fit wyrmwood and how you want to opperate.

If you build you can improve work environment according to your challenges. Think of the workers. Acoustics etc

Honestly, I think you're super wrong about this. This would have been great thinking a year or two ago, but it's too late for this decision imo. There's plenty of good options for you can invest your money into to maximize return. We're seeing unprecedented inflation right now due to supply chain problems, the Fed's recent money injections, the crisis in Ukraine, and corporations being opportunistic. But that inflation has already happened. How long will it continue? A quarter? A year at most? After that point, there will be a readjustment. Are companies going to lower prices? Not if they don't have to. But you could very easily see an upcoming period of unusually miniscule inflation to counterbalance it. Additionally, a full-on recession could easily be due once the overcooking of the economy via stimulus wears off, and then the value of your new asset drops and you're upside down on your mortgage for a number of years. Now, if you're definitely going to buy sometime in the next 5 years, sure: do it now before interest rates go up. But on the question of rent vs buying... I feel like you're already too late. It would have made sense to do this a year or two ago *before* inflation hit, but now all you're doing it buying at the top of the market. Everything is crazy expensive right now, including building materials. It's a great time to /already have/ a fixed rate mortgage, but not such a great time to get one.

Brilliant video! Thanks guys

@Wyrmwood i would consider how long you plan to have this business. Long term?= build and own. When its paid off all is net $$ If you plan on short term/ “make the money to retire and sell the brand” Then stay with renting. And someone will buy the brand with a better location ready to go At least thats my quick thoughts. Cant wait to see more!!

I want to see Wyrmwood build a new location from scratch, because I think it'd be great content.

Anyone get the feeling Doug is freaking out because of some financial stuff we haven’t seen? Getting the same vibe from when he came out saying “let’s make a cheap gm screen.”

If you do plan on building your own facility, you should consider New Hampshire. Not super far away for anyone willing to move, and best of all no income or sales tax. There are a few Massachusetts based companies that have manufacturing or distribution facilities in NH. Only downside is that somehow, the "live free or die" state, the "liquor stores on the interstate" state hasn't legalized marijuana yet. So you will probably lose Bobby in the move...

With no mind for practical concerns Whatsoever...stay in the current place...it just looks really cool in the older sections with the tower and all the brick! Buy it: level the most outve shape part to create parking and build in some better docks.

I think I'm on the side of build to Wyrmwood specs on property that Wyrmwood would own. Yeah, the up front costs would be massive, but if you're paying something like 750K a year in rent and whatnot, over time it'd essentially pay for itself, and then that rent money becomes extra profit. Plus you'd have a nice new building instead of a janky old one. Basically, you'd get to have what you want, rather than make due with what you have. Of course, that depends on what you can swing, and where the dice fall. Frankly, I think of the Brittania location as the same thing as a starter home... but now you've got kids and you need to find something bigger that you can grow into.

With the cost of building supplies and labor, it's probably cheaper to buy something that is already built. So many businesses went belly up during the last 2+ years (Covid). Commercial property is a depressed market even with the massive rate of inflation. As a business owner myself, that is where I would focus my attention first anyway. As far as inflation, it will remain high as long as the Fed continues to drag its feet on raising the discount rate. Prognosticators expected a rate increase or two in March. We got one increase of 0.25%...which didn't do much and was a bit of a surprise. They are still expecting at least 5-6 more increases this year with the total increase being 1.75-2.00% minimum. Expect 0.50% increases in April and early June, then a pause to see if the moves cause inflation to be steady and start to decrease. I say all that to point out that inflation at 8-10% isn't likely to stick around for more than a year or so. Hell, the Fed Chair came out yesterday and said they may raise the discount rate as many as 11 times between now and the end of 2023. That would be a ton of change quickly and would likely crush inflation along with consumers cutting their spending (which has already begun to occur). Regardless, we are headed straight into a recession, and it's not particularly avoidable. The only question is will it be as harsh as the last one (2006-2009). With the Fed needing to raise the rates (the exact opposite of what they normally do in a time of recession), it does not bode well for the economy. It's going to tank pretty hard in the not too distant future.

I want to see Doug as a commercial landlord. If you build to suit then you better build your expansion space as modular refit so you can rent it out while you wait to expand. Episodes of Bobby arguing to let a weed grower rent the space and Doug renting it to poutine restaurants instead (plural, I know what I said). Also what the frak was that last sentence by Moses. Caviar storage!? house shaking wtf!!?

If you're interested in moving to a different state, I'd look in West Michigan. Was pretty diversified and had a lot of furniture business before the whole car crash of detroit so west michigan didn't get hit as hard, beautiful area of the state, some amazing cities; grand rapids is awesome, really blowing up lot of huge medical research and hospitals and college, tun of microbreweries, restaurants, art festivals, comedy festivals, etc. Only problem is that like everywhere cost of living is going up since its such an awesome place. Access to the great lakes so there is still shipping by water, and land transportation.

Acre is 43,560…. He’s also talking about the FAR (floor area ratio). I wonder what he’s talking about with the wetlands. Must be a weird mass law.

I'm guessing ct, there's so many warehouses and factory out here.

guys... the cpi is year to year, not in a single month... please tell me someone corrected you...

Wierd how wyrmwood teaches me more about debt and shit, than my school did.

epic games bought an abandoned mall. you working in a Sears size place. you can have customer side with still running stores with lots of parking and docks

The way I see it is if you stay, there's bound to be troubles with the future. And if you go, it'll likely be double. I'll see myself out.