What I learned in Scottsdale
A brief summary of the Industrial Deal Makers Panel follows below:
Industrial Deal Maker Panel – SIOR Scottsdale Conference
Here is a preview of the panel we’ll be having in Scottsdale this week. I’ll post notes and the audio as soon as it is ready. All slides are in pdf format. klein SIOR presentation
ONE-HOUR WAREHOUSE
As I was driving around Dallas last month looking at Big Industrial there was news that Amazon was about to offer-one hour delivery to selected zip codes. Dallas Morning News has a good story with the reasoning behind it. The important part for real estate location is how Amazon and others like them pick their zip codes for the roll out of the new service. Density is the primary factor. If you are 40 minutes away from the densest areas with multi-story housing, you can’t make too big a mistake. Other location criteria is still experimental, as-is many of the theories behind ecommerce location. If one-day service is successful, there will be many corollary locations in other cities. Real estate people like myself are watching the ecommerce evolution carefully.
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Dealin’ In Gardena
The history of Gardena matches the development of Southern California with a couple of notable exceptions. From Spanish land grant, to small ranchos, a strong period of industrial growth, to today’s reliance on international trade. The unusual Japanese and Asian influence gives Gardena its unique characteristic, mostly to the positive because of the industrious nature of the Japanese culture. Interestingly, there were two waves of Japanese immigration. One in the early 1900’s as farm labor and again in the 1980’s with the arrival of the global-scale Japanese corporations. The Gardena development plan of mostly smaller industrial property is also significant.
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The Challenge of Ecommerce Real Estate
We’ve been examining some of the larger ecommerce distribution companies and while it is a very notable trend in the industry, we’re finding the current leasing impact is substantially less than the publicity it currently garners. But this is still early in the migration to a new distribution platform and a lack of building supply is holding back ecommerce adoption especially in infill markets. Ecommerce users generally want a lot of loading, high clearances, and large employee parking lots. These are not buildings typically found on the market and in this period of extreme shortage, there is no incentive for developers to develop anything “out of the box”. However, those few developers who have been willing to take the risk and build ecommerce buildings on spec have been richly rewarded.
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Strong Demand But Not Much Product
2014 ended on a strong note at year end. All my listings are either leased or sold and it confirms the space shortage that is looming throughout Los Angeles. Tenants should be looking six months prior to lease expiration and be prepared to pay double rent as soon as they find a space they like. Not only has there been very limited new construction over the past several years, but high sale prices have taken a lot of buildings off the lease market. This has put upward pressure on lease rates for functional distribution type warehouses. Most new developments are exceeding their proformas with deals being struck during construction, especially on the sale side. The predominance of cash buyers, both from foreign investors and funds is dramatic even as the march of higher prices and lower yields continue.
Looking at US Industrial with the US Cluster Mapping Project
The Cluster Mapping Project (CMP) was pioneered by Michael E Porter of Harvard University. He is just as well known for his works on Competitive Advantage. His work is a necessary foundation for US Industry and business organizations. I reprint his Value Chain diagram below for company diagnostics, which has been repurposed to examine the competitiveness of regions. To understand the implications of location and clustering, you can read an article Professor Porter published in 1995 about the strategic location of inner cities which is just as relevant today.
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SIOR Nashville – October, 2014 – Land Development Roundtable and MAPP Presentation
I’ve uploaded my presentation for the Nashville conference in a PDF document. The focus is on industrial land development throughout the United States. Everything goes better with good programming and I hope to demonstrate how the MAPP program is helping me with land developers. I have some other thoughts I will be sharing with you shortly about developing a trading platform for on and off market industrial. In the meantime, please review the attached and contact me with any questions or collaborative enterprises. Nashville Land Development Program
Where The Land Deals Are
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Where The Land Deals Are
On April 23rd, SIOR held a Land Development Meeting in Las Vegas. We were fortunate to have four leading industrial building developers tell us about industrial land deals today. The comments have been updated to the publication date of this article.
Funds Continue To Dominate Purchasing Activity
Funds are dominating the purchase of industrial real estate. Out of the top 40 Los Angeles industrial deals this year, the majority were purchased by funds. For off-market deals, funds purchased closer to 100% of properties that were quietly offered. The size of the fund can range from a $20 Billion public company dealing in billion dollar portfolios to a single operator with wealthy partners buying an old building to rehab. What unites all the funds is their view of real estate as an investment, not as a place to do business.
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