The leader of this Effingham, Illinois, industrial development firm has found success by focusing on rural America.
FOUNDED IN 1986, Agracel, Inc. began as a farmland investment company. Through the years, its core focus changed from farmland investment to industrial development in rural America. The company has developed more than 15 million square feet of industrial space in 20 states.
Development: Describe the size and scope of your company.
Jack Schultz: Agracel has completed almost 200 industrial projects during the past 25 years, mostly in rural America. Virtually all of our work is with manufacturing firms focused on auto parts, plastics, metal bending and food, generating space to accommodate more than 14,000 high-paying jobs in those plants. Our focus is in the Midwest, South and Southeast, which is where most manufacturing growth is occurring today. To solidify our focus in these key markets, over the past decade we have expanded beyond our corporate office in Effingham, Illinois, and opened satellite offices in Greenville, South Carolina; Jackson, Mississippi; Nashville, Tennessee; and Columbus, Ohio. We own about 70 percent, or 10 million square feet, of what was originally developed with a “forever” mentality when it comes to ownership. We don’t know of another firm that operates in our unique niche across as many states.
Development: What is your primary role as CEO?
Schultz: Most of my time today is spent on how we transition the firm during the next decade from both a management and ownership standpoint. We established an employee stock ownership plan five years ago as part of that transition. I spend time on strategy and long-term financial management.
Development: What are some things you have discovered that you are not very good at personally or as a company?
Schultz: Personally, I’m not good at paying attention to the details, but fortunately we’ve got team members who excel in that respect. As a company, we’ve discovered that we don’t do as well when we stray from our core competency.
Development: What qualities do you look for when hiring senior staff?
Schultz: It is very important to us that we have partners who are driven to excel, but are also team players. We want teammates who understand the culture and long-term nature of our work. I couldn’t be prouder of the team we have assembled over the years, carefully selecting team members and then integrating them as a unified group in a deliberate manner. Our very long-term focus, a clear strategy and shared ownership has resulted in our developing a rather stable team, with over 70 percent having more than 10 years of tenure with Agracel. We seldom lose team members.
Development: What was one of the biggest mistakes your company made?
Schultz: Right before the Great Recession, we were approached by a local entrepreneur who wanted to duplicate the Branson, Missouri experience, a highly desirable vacation spot in the Ozark Mountains, in our small town of 12,000 residents in southern Illinois. We strayed from our core competency, raised funds from 30-plus local people and built a 1,500-seat theater. It flamed out spectacularly during the Great Recession, and all of the investors lost their investment. We systematically closed the business down, transitioned the theater into a not-for-profit and paid back the local banks that had funded construction. We didn’t understand the business, strayed from our competency and paid the price.
Development: How is your company preparing to weather the inevitable economic downturn?
Schultz: Partially because of the unique niche we operate in, we have developed a very strict financial model that is focused on developing net worth in the long term, with limited financial downside. We only do long-term (10- to 15-year) leases, put significant equity into each project and amortize most debt for 15 to 20 years or less.
At the end of 2017, we had an eight-year weighted averaged lease term, interest rates locked in for 4.4 years and remaining debt amortized over 101/2 years. Our debt was paid down to about 30 percent of fair market value, and 30 percent of our buildings were either debt-free or would be paid off by the end of their current lease terms.
One of the keys to our long-term success is the ability to keep tenants in our buildings. It is especially important because we are focused on rural America, where there are a small number of potential customers looking to lease buildings. During the past decade, including the Great Recession and its aftermath, our renewal rate has averaged 77 percent. The reason for this is high “bolt-down,” which means that the equipment and processes bolted down to the floor are often of a greater value to the tenant than our buildings, and they are very expensive to move. Hence, it is much easier to renew the lease than to move into a new building.
At the end of 2017, more than half of our buildings had greater ”bolt-down” value than building value, with the equipment inside worth 1.3 times the value of our buildings.
In the past year, we’ve added 2.1 million square feet to our portfolio. Of that, 62 percent were high “bolt-down” buildings and 15 percent were mission critical to another manufacturing plant nearby.
Development: Looking out three to five years, what do you see that will impact the industry? What are you doing today to prepare for those challenges?
Schultz: I wish that we could see out three to five years! We are in an incredibly disruptive period, and there are so many innovations that could impact us greatly in the future, like autonomous cars, 3-D printing, augmented reality and artificial intelligence (AI). There will be huge winners but also big losers, with some industries completely disrupted. We spend quite a bit of time and effort in trying to understand these new technologies and what their impact could be on our portfolio.
Development: What is the best advice you have been given over the course of your career?
Schultz: Here are three pieces of the best advice I have ever received: underpromise and overdeliver; do what you say you are going to do; and always share bad news quickly — good news will get out soon enough.
Development: What advice would you give someone entering the commercial real estate industry today?
Schultz: Find a niche and then become the best you can be in that niche.
Development: Did you have any mentors early in your career? What did they teach you?
Schultz: I had several mentors early in my career and learned a great deal from them. I also was very fortunate to get into the NAIOP National Forums when they first started. At the time, I had only done two build-to-suit projects. What I learned from those Forum members was invaluable, and I will always owe a debt to NAIOP for what that experience did to help change my life for the better.
Development: Do you still have a mentor?
Schultz: Yes, I do. I have several, and I meet with them regularly.
Development: It has been a decade now since you wrote your book, “Boomtown USA,” in which you examined how small towns could prosper by leveraging their resources to break through the “one company town” mindset. Are the “71/2 Keys” that you offered in the book, which includes advice for small communities such as using available resources and encouraging entrepreneurialism, still relevant today?
Schultz: I think that what we found in our research a decade ago is even more relevant today. Technology that wasn’t readily available back then is pervasive today, and it is possible for a person to work and stay in touch from virtually anywhere in the world, which is very positive for rural America going forward.
Development: How do you de-stress?
Schultz: I love to read, and I can forget everything else when I get into a great book.
Ron Derven is a contributing editor for Development magazine.