Video Insights

Sponsor Spotlight: Get to Know Finial Group

In this video, we introduce you to Finial Group CEO, Keith Bilski, who spotlights key elements of the company’s structure and strategy.

by CrowdStreet
May 29, 2024 ·

 

Meet Keith Bilski, Founder and CEO of Finial Group. In this interview, Keith discusses Finial's vertically integrated structure, explaining how it can help align the company’s interests with those of its investors. He also sheds light on Finial’s off-market acquisitions strategy, explores the supply and demand dynamics of last-mile distribution and light manufacturing assets, and highlights the markets that Finial finds most interesting.

Finial Group was founded in 2010 and has since then deployed six industrial aggregation ventures, expanded into five markets across three states, deployed its strategy across five different types of real estate assets and, in total, capitalized approximately $400M worth of investment projects, as of January 2024. A repeat sponsor, Finial has launched four offerings on the CrowdStreet Marketplace as of May 2024.

Keith Bilski:

When launching the firm in 2010, it was important to me that we named the company something other than my own personal name. It was always my intention to grow the firm to be something much bigger and much more team oriented than just me as an operator. So I started researching words that had some degree of meaning or symbolism, and we came across and were drawn to the word finial, really because of its meaning of being the architectural apex at the top of the building. Maybe the most well known is the finial at the top of the Empire State Building. And the goal is like the finial of a building to be above the level of our peer group in competition.

What that structure means to us is in-house, we have our own acquisitions team that effectively is lighting up the phones every day, making cold calls, trying to find willing sellers of assets in an off market way. This enables us to buy these assets off market rather than buying marketed assets. Also, an important component to the vertically integrated strategy is that our leasing team that's working on the deal and have to think about whether or not that lease is really accretive to the overall strategy. And then the same is true for our asset management business.

So we really like the last mile distribution in light manufacturing space primarily because of the supply and demand fundamentals. The interesting piece in why we're honed in on this specific niche is the supply side has been really constrained. So while you all know that there's been lots of industrial development in recent years, almost all of that development really has been large bulk distribution buildings that are multi-tenant assets for very large tenants. Very little development has occurred for these smaller single tenant assets, and there still are a lot of tenants that need to be in these buildings. They need outside storage or lay down yard for some reason, and they can't go into a multi-tenant building. When you kind of combine the two fundamentals of growing demand and constrained supply, we've seen very rapid absorption of vacancy and we've seen significant rental increases and we believe that continues for the near term.

We really track where population is growing. Markets that have significant population growth tend to have the best demand for our target product. So if you think about as population grows, there's more people consuming consumer goods. Those goods come from a warehouse that's strategically located somewhere nearby where they are. The same can be true on the manufacturing side in that manufacturing tenants really want to be in markets where there's a substantial employment force and a big labor pool. As population grows, those markets tend to become more attractive. So as we think about markets we want to be in, we like Texas of Houston, Dallas and Antonio. Obviously we've expanded into Atlanta and Nashville recently, and we're currently in the process of working to generate pipeline for future ventures that would be in Florida and the Carolinas, really all because of that population growth.

So that's an important part of our overall process because of the vertical integration, we have an acquisitions team that's making cold calls, loading opportunities into our pipeline. So with that, we're able to be very selective and that really is what makes the strategy special in my opinion, is that we're able to construct a portfolio based upon a lot of assets that are available in the pipeline. So we can be very thoughtful about things like combining the stabilized assets with the near-term rollover that have mark-to-market opportunities and combining that with the right percentage of vacant buildings that are acquired at an attractive basis and have lease-up potential. So combining all of those is really where value-add comes from. But then we have the ability to do things like create geographic diversification. We can be thoughtful about the industry of our tenant diversification.

The most important we believe is really the supply and demand side of things. So you have growing demand and you have constrained supply in our target space. So that's the main macro factor we tend to think about. But I think in today's environment it would be unfortunate to not talk about interest rates. And that's an important macro factor. And I think as we think about this product type, one of the reasons it's so compelling is we're still acquiring assets at cap rates and yield on cost to numbers where debt at today's financing rates is still accretive, whereas a lot of large multi-tenant assets are trading at cap rates and yield on costs to numbers that are actually below the cost of debt, which we just really don't believe in as a strategy. Generally speaking, I think we believe that rates are likely to remain higher for longer or we at least want to be prepared to thrive in that environment and we're able to do that in this subsector of the market.