Should I Buy the Building? Or Stick to the Business?

Introduction:

This week, Jay Goltz, Lena McGuire, and Liz Picarazzi discuss a common concern: When does it make sense to buy a building for your business? Under the right circumstances—say, with an SBA loan, a good location, and a little luck—the real estate could end up being worth more than the business itself. But what if the business is just getting started? Or what if the owner is nearing retirement age and may not be around to reap decades of appreciation? Is buying the business still a good idea? Meanwhile, Liz and Lena also compare notes on their ever-evolving tariff challenges. One thing Lena has observed is that some owners in her industry have just had it. They don’t want to deal with the uncertainty, and they’re just packing it in: “We’re going to see who survives all this,” she says, “and I want to be a survivor.” Plus: Liz has her first “aha” moment with an AI tool her team built, one that’s already helping convert sales.

— Loren Feldman

Guests:

Jay Goltz is CEO of The Goltz Group.

Lena McGuire is CEO of Spóca Kitchen & Bath.

Liz Picarazzi is CEO of Citibin.

Producer:

Jess Thoubboron is founder of Blank Word.

Full Episode Transcript:

Loren Feldman:
Welcome Jay, Lena, and Liz. It’s great to have all of you here. I want to start today with a big decision that Lena recently made, which is to try to buy a building for her business. There are some unusual aspects to Lena’s decision, which we’ll get to, but maybe, Lena, can you tell us what drove this decision? Why now?

Lena McGuire:
Well, I have been doing my strategic planning, and in order to get to my 10-year goal, there are many goals that I need to meet, and one of them is to have a larger space. And I started looking into that last year about leasing a space, and that’s going to cost me about $50,000 a year. And after three years, that would be $150,000. I’m thinking, “Why don’t I look into buying a building in our area?” In our area, buildings can be purchased for under $500,000 so it made more sense to me to save up some money, use some personal finances, and purchase a building rather than putting money into somebody else’s pocket.

Loren Feldman:
Can you tell us a little bit about why you need the larger space? How are you going to use the space?

Lena McGuire:
Oh, I’m bursting at the seams right now. I have a kitchen-and-bath business, and I have a dealership. So I have cabinet samples. I have countertop samples, hardware, tile flooring. And I have 370 square feet, and it’s just not workable anymore. So I would like to get into a bigger space. So I was looking at perhaps 1,200 to 1,800 square feet as a starting point, and eventually I would like to end up in approximately 5,000 square feet. So, interim steps. I was looking for a bigger space, just because I’m bursting right now.

Loren Feldman:
When you say interim steps, does that mean you’re thinking that you would buy space now, but plan to buy again when you need more?

Lena McGuire:
Yes, what I’m looking to do is get enough space for a little bit more of an expansion right now. And then, as the business accrues money, and my bank account builds up, I would like to build the space that I would like to have so that I have enough space for events, as well as for the showroom space.

Loren Feldman:
Ah, events. Interesting. So the retail aspect of it is important to you as well. It’s not just office and or warehouse type space.

Lena McGuire:
Right, I have an office now, and it’s not really conducive to the showroom manner. So what I’d like to do is have the space for display so people can try before they buy, so they can see. It’s an educational center. And then, I also need workspace for offices for myself and a designer and an admin. And then I need event space so that I can do lunch-and-learns, educational programs, and community service-type programs.

Loren Feldman:
So one of the things that’s unusual about this is that you’re looking to buy a building while your business is still a startup. And you can’t possibly know how quickly it’s going to grow or what your needs might be in three, four, or five years. How have you thought about that?

Lena McGuire:
Well, we’re looking at flex space. So where I am right now in my life, my husband and I are looking at diversifying our portfolio, our financial portfolio, as he’s looking toward retiring, and we would like to put real estate in our portfolio. So that’s where this kind of started. We’re looking at a flex space, multi-use, where it’s retail versus residential, and the area that we’ve targeted to purchase in, where my ideal clients are, there are a lot of shops with apartments above them, or houses that are used as retail locations with back apartments or side apartments, that kind of thing.

So we thought that it would be good to use a space, a part of the building, as retail space, which is allowed by code, and then have that residential rental income coming in to help support the cost of the mortgage. So we’re looking at opening an LLC for the property holdings, as Jay has advised, and leasing the space for my business, paying that to our personal holding, and then also having some residential income from the rent from the apartment.

Loren Feldman:
So you’ll be buying the building personally, you and your husband, and the business would lease the space from you?

Lena McGuire:
That is correct.

Loren Feldman:
You actually found something you wanted, and I think you placed a bid. Is that right?

Lena McGuire:
I did. That was the scariest thing I ever had to do. I found a Realtor, and I spoke with my banker, and started getting all that going, and we were actually able to place a bid. The other Realtor actually really liked the bid, and they took it to the owner right away. The owner liked the bid, but unfortunately, they had already gone into a contract with somebody else a couple of days earlier, and so we are first contingent. So that hasn’t fallen through 100 percent, but it does not look good that I will get the building. They’ve already gone through attorney review. They’ve already had the home inspection. And the only way that it would fall into my lap is if the house didn’t appraise properly or if the financing fell through.

Loren Feldman:
When you say it was a scary moment, making the bid, what was scaring you?

Lena McGuire:
Taking on the responsibility of having that bigger rent payment, using personal funds to support the business. These are bigger numbers. You know, it’s not like taking a $10,000 loan and paying it back in a couple of months. This is a bigger commitment, and I’d like to keep business separate from personal finances, and I would not be commingling, but pretty darn close to it. So, feeling responsible for our retirement money being used.

Loren Feldman:
Which brings up the other thing that’s unusual in your situation. Like me, you’re starting this business a little bit later in life than most entrepreneurs do. You don’t likely have the decades for real estate appreciation that Jay did, for example, when he bought his buildings. Is that a concern for you?

Lena McGuire:
Not so much. This is my second career. I am in my mid 60s, so I don’t have that big, long horizon to make things work, which is why I’m pulling the trigger a little faster and trying to get those wheels moving as quickly as possible so that I can, within 10 years, have my business where I’d like it to be.

Loren Feldman:
Jay, anybody who’s listened to this podcast knows that you have been a big proponent of buying the building when possible. Any thoughts on Lena’s situation?

Jay Goltz:
I have three thoughts. One is, I bought my buildings with SBA loans, 10 percent down, which—I didn’t have any money, so if it wasn’t for the SBA loan program, I couldn’t have done it. So that was a huge benefit. And I was 40—40, 42, 44—when I bought most of the properties. So SBA loans are great. Two, one of the advantages to buying a building that’s got commercial on the first floor and residential on the second floor is, I’ve learned—I don’t know if this is just Chicago, but from my experience—the commercial guys don’t want anything to do with residents. And the residential guys, many of them, don’t want anything to do with commercial. So I think you can get a pretty good deal on a mixed-use building, because there’s less people looking for them.

And if you’re going to be the tenant, then that’s just a no-brainer, because that’s where all the risk is. So that’s a good thing. And I will tell you something I didn’t realize. I didn’t do it for the real estate investment. I did it because I needed the buildings and I was expanding my business. I can’t tell you I was that smart that I said, “Oh, I should really get into the real estate business.” It just happened because I needed it. I will tell you the return on investment for real estate, if everything goes as planned, is very good. It’s 15-to-20 percent return on equity. Why? Because you’re borrowing money, so you’re only putting down 30 percent. If you’re getting what’s called the cap rate of 7 percent, which is what buildings are usually valued at, meaning the rent is going to be 7 percent of the value. So if you’re getting that 7 percent, that’s good. But then the building’s going to appreciate two and a half percent a year, being very conservative, but you only put down 30 percent. Well, that’s another 7 percent on the investment, which is only a 30-percent portion. So you’re making seven and seven, so that’s 14. if you happen to get into an area that’s moving up a little bit, that could easily turn into 20 percent.

So real estate can be a very good thing. I’m sure there are cases where it goes the other way. But if everything goes to plan, real estate is an excellent investment—especially if you’re running your business out of it. Because it’s good for your business, because you don’t have to deal with the landlord. Here’s something I always tell people: Landlords all have one thing in common—they all die. And the reality is, if you’re renting from somebody, they’re probably in their 50s, 60s, 70s. They’re going to die one day, and their kids who live in California, are going to want to sell the property. And you could be out of luck with where you’re at. So it just is good for stability.

Lena McGuire:
Right, and that’s another point that, when we’re talking about how to set up the buying of the building, I do want my children to be able to inherit. So we were talking about the LLC, it works well, as far as the landlord-tenant relationship. But then I was also told to look into a defective grantor trust, as well as gifting my children the cash that they would need to pay for a down payment on the building so they could be partial owners.

Loren Feldman:
A defective grantor trust. Can you tell us what that is?

Lena McGuire:
No. [Laughter]

Jay Goltz:
Neither can I. That’s over my pay grade. I’ve heard of it, but I don’t really know what it is.

Lena McGuire:
That has been mentioned to me by a couple of people, and it just seems it’s a way to arrange your estate so that it’s more tax advantageous, so that the grantor is paying the taxes. I don’t know about all the details, but it’s something to make sure that my attorney is savvy enough that they know what it is, so that we can make an educated decision as to whether or not to go that route.

I have two adult children, and we’re looking into having them be partial owners with the LLC holding company, so that when I pass—because, like Jay said, landlords die and once they’re older, and I am older, and I plan to die eventually, just like everybody else, so I would like the transition to the children to be as easy as possible. And if they have partial ownership in it, then that helps with the probate. It helps with the passing of the estate. So that’s something else we’re looking into. And I’ll tell you, I am learning boatloads on a daily basis with this.

Loren Feldman:
Lena, Jay was talking about the advantages of financing with the SBA. Do you have your financing lined up?

Lena McGuire:
We are working with our banker, and it will be a commercial loan that my husband and I will own as an investment property. So we’re not going through the SBA, because the business isn’t buying it. We’re buying it personally.

Jay Goltz:
Wait, just to be clear, that’s not really the case. You could still buy—the problem is, you have to occupy a certain percentage of the building, so the fact that you have renters upstairs might make that not possible. But all of my buildings were SBA loans, and I bought them all through an LLC, so that’s not really the issue. But you have to be using X percent in order to do that, which might not be the case in your case.

Lena McGuire:
That’s probably true, as well as not having enough of a background to qualify for the loans, right?

Jay Goltz:
They might not like to think you’re a startup.

Lena McGuire:
Right, yeah.

Loren Feldman:
Does that mean you have to provide a lot of collateral that might be uncomfortable?

Lena McGuire:
No, we have enough that we could buy the building outright, but we want to do the leverage, so we’re going to go the mortgage route.

Jay Goltz:
I assume they want 30-percent down. Is that true?

Lena McGuire:
In our area, they’re only asking for 20.

Jay Goltz:
Oh, that’s good.

Lena McGuire:
So we’re looking at, if I could do 20, I’ll do that. But if I have to do 25 or 30, it’s still not going to be a problem for us. But, yeah, less is better.

Jay Goltz:
As far as return on equity, there’s no question. This isn’t an opinion; this is mathematical fact: Real estate works best when there’s some leverage on it. Because you’re putting less money into it. Buying a building and paying all cash for it is not a great financial—you might sleep better because you’ve got no risk, but it’s not the way people get rich with real estate.

Lena McGuire:
Right, and that’s the conversation I had with my husband. He thought we would just take that money from one portfolio, and put it into the real estate. I’m like, “No, no, no.” We’re not taking and paying cash. We’re going to leverage the money. We’re going to use as little of it as possible as a down payment. So the bank is going to let us know what that is. And currently they’re suggesting 20 percent.

Jay Goltz:
Yeah, that’s good, 20.

Loren Feldman:
Liz, I think, also influenced somewhat by Jay, you have had thoughts at various times about trying to buy a building in Brooklyn, certainly a challenging place to do so. What’s your current thinking?

Liz Picarazzi:
So a few years ago, when we talked about this, I was actually in a lot of warehouse pain because with the pandemic and with needing to warehouse a lot for a while, while we weren’t selling as much, we got into a warehouse that turned out to be really not good for the business, and they weren’t really good people. And to make matters worse, it was about an hour and 15 minutes out of the city in New Jersey. And then they actually moved it even further out. So my technicians were driving the van out there like twice a week. When we went and got the stuff, often it wouldn’t be ready for us to load in the van, and so my techs would have to sit there and twiddle their thumbs for a couple of hours. So there was that logistical challenge, and then I just didn’t really trust them.

Well, then the next thing I did was move most of it into Brooklyn to a warehouse in Red Hook, Brooklyn. It’s right on the water. And we outgrew that. And when we outgrew it, we ended up having two warehouses. Actually, I would say two and a half, because we had some stuff in self-storage. So I knew I wanted something more permanent. I briefly thought about a warehouse, buying a property. But on one hand, I don’t think I would like running that business—and I know I wouldn’t be “running” running it, but the idea of being a landlord on a warehouse—which, yes, is a business—had absolutely no appeal to me. And I’m really focused on what I’m doing.

So the end of the story is, we ended up moving into a warehouse on the campus of Industry City. We’ve been there for about seven-eight years now, with our office, and our showroom is there. They have buildings all over this campus. I think it’s like 25 buildings. And one of them, we got a rate there that was really good. And so I moved all my stuff there about two and a half years ago. It’s all consolidated in one location, and it’s literally walking across campus from my office to my warehouse. I like that because it’s convenient.

I also like it because it’s easier for our technicians to engage with the team, so they’re just not driving between the warehouse and a client, back and forth, back and forth. They can stop in for meetings. And I feel like there’s better cohesiveness, because the schism that sometimes can happen in service companies between the technicians and the office is something I don’t want to have. I had it with my previous business, so I’m sort of actively working not to have that so we all feel like one team, even if they only come into the office every other week.

Loren Feldman:
Is there room for you to grow there?

Liz Picarazzi:
Absolutely, we’ve already grown out of one location. Probably next year, we are going to have to move, but it’s going to be within one building, literally, like from floor three to floor five, or five down to three. And that’s part of why we’ve decided on that. Similarly, with our office, we started in a small office, and now we’re in a much bigger office. All I had to do for that move was just across the hall. Didn’t need to go to a different building, another part of campus. I literally doubled the size of my office by moving stuff from one side of the hall to the other. So I really like that convenience, and especially with the inventory, we’re turning inventory really fast right now, despite all of my challenges.

I also like the feeling of being around other small businesses that, similarly, may have their office in one building on campus, and then they’re in this warehouse, so this sort of split locations. It’s a feature of Industry City that I think is really great, and it’s totally worth it to me, and has made the appeal of buying a building far less.

Jay Goltz:
Part of the story is, you said they’ve got empty space there. They’re probably giving you an aggressively good price. So, you know, that makes sense. It’s not always better to buy the building.

Liz Picarazzi:
Well, and also the cost of driving time, to go from an hour and 15 minutes drive to the warehouse to an hour and 45 with very little notice. I have to count that driving time as labor time. And so our situation now, we’re paying less, less hassle, and with the ability to move into a larger space without much difficulty. We did have overflow a couple months ago, and we rented incremental additional space, and then they allowed us to just pay for a month. And that was only for a month, and it was all in the same building. It was very convenient. So, I’ve got a great arrangement.

Loren Feldman:
Liz, you just compared your current situation with what you had before leasing in New Jersey. Did you price out a warehouse space to buy in your neighborhood, something comparable to what you have where you’re leasing now? Were those prices comparable?

Liz Picarazzi:
Honestly, I didn’t seriously enough look at it. I only did know that if I were to buy a building warehouse, that it would be so much more valuable outside of the city and more affordable. We do get a lot of notices from real estate guys who are trying to sell warehouses, but it’s not appealing to me. Part of the reason I’m an entrepreneur is to do things that excite me, and that does not.

Loren Feldman:
Well, is part of it thinking about other uses for the money? Is it a question of what you want to invest in?

Liz Picarazzi:
Yes, and also a little bit of: I might want to sell. Let’s say I want to sell in five years, sell the business, I guess I just don’t like the idea of my business being a landlord on a building. I’m just not interested in it. That’s really what it comes down to.

Jay Goltz:
I have to tell you, for 20 years, I didn’t own anything. I didn’t buy the building till I was 42 for the reason I talked about: The landlord died, and he was redeveloping it, and I got pushed out. And luckily, the building next door was for sale, so it worked out. But coming up with the down payment for a building can be a real problem if your business is growing. I certainly didn’t have 30-percent down.

Lena McGuire:
And my business doesn’t have 30-percent down either, but I have the finances with my family to do it, so that’s a big difference, being an older entrepreneur.

Loren Feldman:
There are advantages.

Jay Goltz:
And having a spouse that makes income. I mean, I’ve always been on my—you know, my wife was raising the kids so I didn’t have a second income.

Lena McGuire:
Yeah, I realize that I have a lot of advantages that some other people wouldn’t have as a startup kind of business.

Loren Feldman:
Jay, I know you’re not interested in, looking to sell your business, but have you thought about—if you did choose to sell your business—which would be more valuable: the actual business operation or the real estate that you own in Chicago?

Jay Goltz:
That’s an easy one. The real estate’s worth more than the business, no question about it. Now, to be fair, the neighborhood I was in was an abandoned factory district—it was better when I bought it, but it was still not what it is today. It grew into a major retail block, and the real estate’s going up more than somebody in a normal place would have gone up. But there’s no question, the real estate is worth more than the business.

Loren Feldman:
In some ways, you’ve been operating a real estate company, as much as—

Jay Goltz:
I have to tell you, my accountant once told me—he goes, “You know, you’re really in the real estate business.” I mean, I own five pieces of property that are all servicing the business. And, yeah, real estate’s a good thing, usually. But there’s clearly some people who bought buildings [where] the neighborhood went backwards, but I think that’s the exception more than the rule. I think, generally, real estate is a good thing.

Loren Feldman:
Have you thought about it from that aspect, Lena? If for some unfortunate reason your business were to not succeed, is the real estate still a good investment?

Lena McGuire:
Yes, we have thought about that. So the area we’re looking in is a more affluent neighborhood. It’s more of one of those Main Street USA village type things where everybody has flower window boxes, and it’s just lovely. Everybody walks through town. So it’s not quite a tourist destination, but the people who live there, they like to go into the shopping district, and it’s all very walkable, from the farmers market to the different stores that they have. So this is a village that has been this way for decades, and it’s just continuing to grow, and it’s actually branching out into further streets, so starting to maybe take over some of the residential areas.

Loren Feldman:
Are you at all concerned that this is locking you into something and decreasing the flexibility that you might like to have, as you figure out what your business really is?

Lena McGuire:
No, I’m looking at it as a stepping stone. And if I only get to that point, that’s okay, but if I don’t do it, then I’m not going to get to where I’m going to go. So I look at it as an investment for my family, but business-wise, I do need the additional space. I do want to be closer to my ideal clients, and having that retail location near them, I will have more opportunity for walk-ins. It just seems like a win-win all the way around.

Loren Feldman:
Jay, clearly, it’s worked out beyond anything you could hope for, but I’m wondering if along the way, there was ever an opportunity where you felt as though owning the real estate was costing you something, in terms of flexibility.

Jay Goltz:
No, but I will tell you, when I bought the first building, I bought it for land value. That’s how bad the building was. It was basically being used—not basically—it was being used as a warehouse for plumbing supplies. There was no heat, no air conditioning. It barely had electricity. The roof was caving in. It was in bad shape. And not knowing anything, I figured, “Well, I’ll put a couple hundred thousand dollars in, and we’ll get it fixed up.” Yeah, $200,000 is nothing. So, next thing I know, I’m completely—I don’t know, I forgot. I probably put it out of my mind, because I got PTSD from it. I probably put $600,000 into it and maxed out my credit line, and was completely stressed over it.

But I would tell people that advice: It’s probably going to cost you more on the front-end than you thought. It’s the nature of the thing. But 20 years later, it’s going to pay for itself 10 times over. So it can be scary when you buy a building, because people don’t know what it—well, some people do; I didn’t—what it costs to fix up a building. It’s not $20,000, usually.

Loren Feldman:
So just to tie this up, Lena, you put in a bid. It’s probably not going to be accepted. Where do you stand now? Have you spotted other possibilities?

Lena McGuire:
Not in the same town. There is another building in another town, so I’ve been going back and forth on it for the last week or so. Do I want to take the opportunity to have a building because I really need the space, or am I going to hold out for something in the area I want to be? And I’m leaning towards waiting for that right space in the town I want to be.

There’s not a whole lot of buildings coming up for sale, but there are three or four every year. So I may have to take a little longer than I want, but I think it’s worth the wait to find something. And being in the business where I can do construction, like Jay said, it always costs more and takes longer than you think it will. And I’m prepared for that, because that’s what I deal with on a daily basis.

Jay Goltz:
Well, you know way better than I. I’d never done anything. So I was just pulling a number out of the thin air. So you, I’m sure, have a better idea for it. And I will tell you, I just talked to a guy who owns a bunch of commercial real estate in Chicago yesterday. He told me there are very few people looking to rent space now. He’s got lots of empty spaces. So, it’s a little bit of a buyer’s market at the moment, I think. At least in Chicago, it is.

Lena McGuire:
Yeah, it’s that way here, too. There are more places to lease. They’re getting a little more flexible on the payments and what you can and can’t do. But it’s also, for the type of building I’m looking for, even the place I was looking at, the reason it sold was because the house next door was for sale also, and they were buying it as a package. And it wouldn’t surprise me if they were going to just raze the building to the ground and build something new, because it effectively is two corners.

Jay Goltz:
I would also add, looking for retail space, what I’ve noticed is, go for the better location, because the value of that is usually not baked into the price—meaning, to go spend another $200,000 for a building at even 7 percent interest, 14 grand a year, that’s like nothing in advertising. So if it’s more noticeable, it’s well worth paying more money. And from what I’ve seen, like you said on the corner, from what I’ve seen, it’s usually not baked into the price.

Lena McGuire:
I absolutely agree with you. I would rather pay more to have that prime location than to be a few blocks off of the main drag.

Jay Goltz:
Or even one block off.

Loren Feldman:
So Liz, there are a number of things I’d like to catch up with you on. As usual, there’s some recent tariff news. I should say we’re recording this on Thursday, October 16, and as of now, President Trump has threatened to add an additional 100-percent tariff to everything coming out of China. You still, I think, have stuff coming out of China. Am I right about that?

Liz Picarazzi:
Yes, you are right. We have diversified a lot in the last year in particular. We’re now primarily in Vietnam. We’ve got a little bit in the U.S. that we’re starting with, but there are some things we’ve worked on that—especially, actually, the bear product, the GrizzBin—that we don’t want to move over yet.

Loren Feldman:
Just to remind people, the last time you were on here, you told us you’d won your certification to sell bear-resistant trash enclosures.

Liz Picarazzi:
So, we are going to be moving the bear, the GrizzBin, over to the U.S., hopefully completely in 2026. But we do still have some of it in China. And then we also, on our regular product, had a P.O. from a city in Texas. They want it fulfilled sooner. And so we put the order in with China instead of Vietnam, because at this point, China is actually not that much more expensive. The tariff in China, for me, is 62 percent, and in Vietnam, it’s 50. So we had placed the order with the tariff rate at 50 percent. Then on Friday, we hear about this threat of an additional 100 percent due to China making some threats about rare earth minerals.

And you know, I’ve been through this a few times before. Some of these announcements happen on a Friday night, I’ve noticed, after the market closes, and then I have the whole weekend fretting about it. I did better this time, because I’m used to it. I’ve developed muscles for it. But I knew this weekend I needed to sort of get my thinking together to have to make a pretty big decision, which I made on Monday, which was to hold the container.

We had a container that’s supposed to—I’m burying the lede. We have a container that’s supposed to hit the water tomorrow. And I’m really glad that the announcement happened last Friday instead of tomorrow, because I would have literally stuff on the water for less than a day—that 50 percent that suddenly was going to be 150 percent. So that would have been really scary, but because of the volatility, we’re going to just wait it out a little bit. There’s some components from that container that we’ve pulled out because we were going to fast-track them, even if it was at 150 percent. So, I guess the message is: This TACO phenomenon is a real thing. I’ve become aware of it. So, TACO Trump always chickens out. Knowing that that’s a pattern helped me deal with this latest uncertainty.

Loren Feldman:
So that’s what you’re hoping for, that the 100 percent will never actually go through.

Liz Picarazzi:
Yeah.

Loren Feldman:
Lena, there’s also been a recent tariff placed on kitchen cabinets. Is that an issue for you?

Lena McGuire:
Not yet, but it will be. I have been very strategic with my business, wanting to buy American since I started the business, so it took me about two and a half years to find the right company to partner with. They build everything in America. They do import their lumber from Canada. So right now, what we’re doing is we’re getting not-quite-weekly updates just as the tariffs change and as issues change with the cabinet manufacturer. They’re letting us know where they’re standing, and that, so far, we’re holding.

But yeah, anything that comes out of China, they’re slapping on those tariffs. And I know a lot of my friends who have different cabinet lines, they’re quite concerned. Because they’re talking about having to increase their cost of projects by, some of them, up to a 50-percent increase in the cost of the cabinets. And it’s not clear yet if it’s components or if it’s completed cabinets. So if you’re importing a cabinet that’s 100-percent made, are they going to tariff that? Or is it the hinges and the wood and other pieces that go into making a cabinet? So that’s still all up in the air right now.

Loren Feldman:
Right now, do you think there’s some chance that could be advantageous to you, in that your competitors with imported cabinets will have to charge a higher price than you do?

Lena McGuire:
It could come to that, yes. Right now, what’s happening is, I’m looking at people who are at retirement age, closing their businesses. They just don’t want to deal with this. It’s gotten to the point where it’s getting personal for them, where they have to track what’s going on and how much the prices are on a more frequent basis, and they just don’t want to deal with it anymore. They’re like, “You know what? Let me just sell the business. Let me just shutter the doors.” So I expect there’s going to be a shakedown in the next three to five years. We’re going to see who survives all this, and I want to be a survivor.

Jay Goltz:
I can tell you, things are more difficult now than they’ve ever been. I mean, who could have even imagined this whole tariff stuff? And I can see where somebody who’s 65, 70, 75 is saying, “Yeah, I don’t need this anymore.” I’m not there, and I don’t think I’ll get there, but I can absolutely see where somebody would just say, “Enough is enough.” Because it just keeps getting worse.

Lena McGuire:
Yeah, and as people are deciding to shutter cabinet lines, it’s a territorial type thing. So when you get a dealership, it’s exclusive, so you can sell in this geographic area, but you can’t have this other line. Like, I’ve been trying to get a particular cabinet line that’s really great at a lower price point from what I carry. And I can’t get it because somebody else has the territory. So if somebody is going to leave the market and that territory becomes available, then I’m next in line. So there are advantages to those who survive and disadvantages to those who just want to say, “I’m done with this.”

Jay Goltz:
I mean, do you have any idea what percentage of the market somebody like Home Depot has? I mean, is it substantial? Do they have 30 percent?

Lena McGuire:
I don’t know the percentages, but it is tough, because they carry multiple lines. So each of the box stores will carry a cabinet line at each price level there. They don’t get into level six, which is premium, custom, luxury stuff, but they do the other one through five. And it makes it very difficult, because the manufacturers are rebranding the names of the cabinet lines.

So I can carry something, and it’s this line, but you can go over to the box store and it’s the identical product, but it’s called something different. So what they do is they have several door styles that are exclusive to dealers and several door styles that are exclusive to the big box. And they’ll do the same thing with a couple of paint colors and a couple of stain finishes. So you have some variety, but you don’t have that protection of: This is a unique product that is just sold through you. So yeah, the box stores are a real issue.

Loren Feldman:
Liz, I think you said you’re looking at next year for trying to get the bear-resistant enclosures available. Is that because you’re still looking at domestic fabricators?

Liz Picarazzi:
Yes, we are. We actually have moved ahead with one of the factories. The metal fabricator is in Indiana. They are making a component part for a bin. So it’s not like they’re making the whole bins yet. And then we have another factory—it’s actually in Las Vegas—and we are in sort of the final sampling process with them.

I am looking to move the whole bear business to the U.S., because it also helps me to get government work, particularly at the national level. The buy-in-the-USA is often an absolute requirement. So, that’s an absolute goal. We only launched the GrizzBin, the official bin, on September 17. So we’re going to really see how much demand is there, and plan accordingly.

It’s not something where I’ve had the bear bins entirely made in China. I never moved those to Vietnam, because I sort of knew I would need to move it to the U.S. So it’s really between China, where the tariff is considerably higher, and the U.S., where that’s sort of the logical product to move over.

There is another product that—it’s actually our highest volume product that I am also doing sampling on. Because if I was able to move that to the U.S., I would be able to have sort of two distinct products in the U.S. It’s easier to have that sort of a big chunk of the work than in Asia, where I have them running like 12 products, and they’re really good at producing and managing and quality control on all of them. It took a long time, eight years, to get that set up. So I would not want to bring my broader spectrum of products to the U.S. in a hasty way, because a lot can go wrong.

Loren Feldman:
Is the pricing you’re getting—would it be competitive with what you’re doing in Asia, were it not for the tariffs?

Liz Picarazzi:
Yes, and it’s due to something that I should have anticipated, but I didn’t, and that is that we make our bear bins out of steel. And in China, our cost of making the bear bins—partly because of the low volume, but partly because of the more manual labor that they do with the steel bin—it takes a lot more manpower to do those. That is automated in many cases in the U.S., so the labor costs go down. And also, I am working with some metal factories in the U.S., where they’re purchasing, in very large volumes, aluminum and steel. And so I’m able to sort of get the economies of scale with that.

But I also am looking at the fact that, in Asia, I’m still getting the 50-percent tariff on me from China and Vietnam. So if that goes down to, let’s say, 25 percent, then the U.S. is definitely going to be more expensive. But I’m basically planning for it. I know I’m going to get relief from tariffs when there’s someone else in the White House, even if it’s still a Republican. I just think it’s unsustainable to keep it at 50.

Loren Feldman:
Or 150.

Liz Picarazzi:
Oh yeah, oh yeah. I mean, 50, I’m sort of making work. But you know, we have gone through the scenario: If the tariff goes from 50 to 25, do we still want to be in the U.S.? And the answer is yes.

Loren Feldman:
Liz, there’s something else I wanted to ask you about. We’ve had a number of conversations here about AI and ChatGPT, and you’ve been somewhat hesitant to embrace it, but I know you recently kind of got your interest piqued. I believe you lost a marketing manager and decided to kind of jump into ChatGPT, a little bit. How’s that going?

Liz Picarazzi:
You know, it’s going really well. I’m still learning, but I’m learning quickly. One thing that I figured out is that you can actually learn how to use AI really fast. You have to not fear it. If I feel like I’m spinning wheels on finding images or videos, it bothers me more than the average person, because I sit down there. I’m short-staffed. I’m trying to do marketing, and I find that I’m spending several hours a day, literally, trying to find marketing assets that I know that we have, that my previous marketing manager totally was on top of. I never would have to worry that, if I said, “I need pictures of a three-module medium in coffee,” bam, she’s able to get it for me.

So we’ve built a couple of tools to make that easier. And I have to say, the first sort of big “aha” we had was, we have a mapping thing where we basically make a heat map of all of our locations—thousands of locations now—where we put it on a heat map, and then when we wanted to use the heat map, I would have to dig in.

Loren Feldman:
Liz, these are locations where they own one of your products?

Liz Picarazzi:
Yes, so these are residential, city municipal parks, basically anywhere we’re installed, we have it on a map. And the reason we have it on the map is we want to be able to easily get to it and get the information. So on every little point on the map, all the data is underneath it around customer, date, color, you name it. But it was not easy to use. So the point I realized this, and I’m like, “Maybe AI can help this,” was that I don’t have a marketing manager. So I’m in midtown Manhattan as the photographer of my product, and I need to take a bunch of pictures at eight different locations. And I couldn’t really figure out where they were, because I’m carrying all this camera gear. And I remember at the time it was raining, and I’m like, “Do I really want to pull up this map and dig into the intersections?” It’s like, there’s got to be an easier way to do this.

So I had my daughter working with us over the summer. I said, “Can you try to find a way to query ChatGPT to find very specifically and quickly which intersections our bins are at, and a picture of them as well?” We called it the “sales proximity tool,” and we did it. So we created this query system. It’s really, really helped, not only with sort of my minor thing with being able to find the locations to photograph, but also in sales. Because if we have a client that’s sort of on the fence, and maybe we’ve sent them an estimate, and they haven’t converted yet, we now have a process where we reach out to them and say, “I know you’re still considering Citibin. We actually just did an installation a block away from you. Here’s the address, if you want to go check out a Citibin in real life in your neighborhood.”

We got a lot of conversions from that, because it’s a touch point where you’re giving them information that helps them make a decision. And that is all because of my freak out in the Flatiron District when I was like: “This is not okay the way we’re doing it. It’s absolutely intolerable. We need to find something, hopefully using AI, that will do it. And we did, and that was our first big AI project as a company. And we use it. We use it all the time.

Jay Goltz:
Is your daughter a vice president now? [Laughter]

Liz Picarazzi:
She’s back in college, and I’m not getting anything from her anymore.

Loren Feldman:
Wait a second, she’s the only one who knows how to build AI tools?

Liz Picarazzi:
No, it was actually a collective effort. I’m just saying more generally, with marketing and so forth. She doesn’t have the time for it, but one thing she is doing is photography. So we have a lot of cool installations coming up, and we need photography for it. I don’t have the time for it, and then I’ve actually developed a mechanism to sort of bribe her. So she wanted a very expensive pair of boots over the weekend, and wanted me to just pay for them.

Absolutely not. You’re going to have to earn these boots. They’re way more than I normally would pay for boots for myself or you. So you’re going to do the photography that we need at these five locations in the next month, and then I will buy you those boots. So, I don’t want to call it a—it’s not blackmail, but it’s somewhat of a bribe. But for me, that’s so valuable. Think about how much it would cost me to hire a photographer, which we used to do, or our marketing manager did it, and now I’m having her do it. So this $300 pair of boots, I actually hope that more occasions come up where she really wants something, and I can say, “I’ll buy it if you do XYZ.”

Lena McGuire:
She’s just literally earning the money to pay for the boots. You could pay her. She could buy her own boots. Or you could barter for the boots.

Liz Picarazzi:
Well, we bartered it. But the thing is, I bought the boots already, so now I need to cash in on it.

Loren Feldman:
Does she know that?

Liz Picarazzi:
She does. We just did some installations yesterday that are going to photograph beautifully, and she’s going to do it tomorrow. But so, with the less marketing manager, one less head count, I am sort of using a combination of AI and my daughter to fill the gaps.

Loren Feldman:
And you’re not planning on replacing the marketing manager?

Liz Picarazzi:
Not at this point. I’m going to try to learn more. You know, Loren, you may have noticed that the LinkedIn post I posted yesterday was assisted with AI. If you detected there was a little bit of a different writing style or tone—like Frank noticed it. I don’t want to seem like I’m writing in AI, but it heavy-lifted that article for me, and it helped. It made things smoother. It also made things more concise, because when I write sometimes a little bit too verbose, it can tighten it up in a way that we don’t feel like you’re losing meaning.

Loren Feldman:
Jay, I heard you sigh there. What are you thinking?

Jay Goltz:
I was trying not to make it loud. No, I just find the whole thing… I have to say, though I was—

Loren Feldman:
You find the whole thing?

Jay Goltz:
Overwhelming. Maybe there’s a good word, just overwhelming. I did sit down with one of my people, though, and used it, and I have to say: Wow, it was impressive. I tweaked what it said, but it came up with some words I didn’t think to use. And, you know, it was helpful. My brain’s filled. I feel like I don’t have any more space left for anything.

Loren Feldman:
The advice I’ve heard is, you know, baby steps. Just try to play around with it, do unimportant stuff, get comfortable with it, and—

Jay Goltz:
Or bribe your children to do it. There’s another strategy.

Loren Feldman:
All right. I’m quite sure that in the weeks and months ahead, we’ll be talking more about AI—not to mention tariffs and real estate as well, I suspect. But for now, my thanks to Jay Goltz, Lena McGuire, and Liz Picarazzi. Thanks for sharing, everybody.