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SIOR Industrial Committee – 2nd Virtual Roundtable (via teleconference) – June 7


SIOR Industrial Committee – 2nd Virtual Roundtable (via teleconference)

Thursday June 7, 2018 – 8AM Pacific; 9AM Mountain; 10AM Central; 11AM Eastern (International Members Welcome)

Dear Industrial SIOR,

You are receiving this announcement because you have participated in a SIOR industrial event over the past year. As part of the Committee’s mandate, structured networking among SIORs is a primary goal. To that end, we will be holding our second Virtual Roundtable on the date above. Each table is limited to eight participants so everyone can speak.

The call is targeted at 45 minutes and no more than 60. The time will be divided into three, not necessarily, equal segments:

  • General Market Conditions – Everyone has a turn
  • Are there space shortages in your market? And are there investment/development opportunities?
  • Problem Solving: Share a problem in your business that other SIORS on the table can help you solve?

Concurrently, we are collecting National Industrial Cap Rate data for a forthcoming publication where you will receive credit for your contribution and a complete data set you can use for your own business/publications.

Please respond to the following five (5) questions: (can all be one line for simplicity and we will parse the responses.)

Can you attend the Virtual Roundtable?
(If yes, call information and more instructions to follow)

Metro Area?

Cap Rate for A* Product in your market?

Cap Rate for B** Product in your market?

Will you be a Virtual Table Leader?
(Requires a Conference Call account for you to host)

*A Product is institutional quality, newer development, credit tenants, Build-to-Suit
** B Product is functional, older, shorter term leases, opportunity/value-add



Industrial Building Portfolios – In Heavy Demand

Industrial Building Portfolios, $50MM and greater, are where the action is today. Institutional investors need scale and the only place to find it, as far as industrial, is in the portfolios of National Operating Companies and Private Partnerships. Institutional Investors stand between the real estate and fixed obligations to satisfy pension, insurance, and retirement plans. It’s major financial plumbing and as the obligations grow so does the need for product. Roll ups, a familiar consolidation vehicle in corporate America, is now the preferred way for large real estate investors to buy. Unknown to many, national industrial building ownership is consolidating and almost all local developers/investors sell into these relatively few pools as a final exit.

In order to obtain more income, institutional investors have different strategies. Purchasing brand new developments is a popular way to buy yield. New to the field, are sub-institutional quality buildings, also called “B” and “C”. On its own, a single “B” or “C” asset, may not garner much institutional interest, but as part of a larger portfolio, the property trades at a very low margin. There is strong financial support for proven cash flow in infill markets, even if the buildings are older. Average vacancies across portfolios and the cost to operate these buildings are low.

In Los Angeles, and a few other markets around the U.S., small investment partnerships and family owned businesses have seen the value of their real estate explode. The portfolio effect is one reason, but the real estate itself, often located in rough industrial, is the beneficiary of urban economics and distribution networks. Formerly junky industrial buildings are fetching institutional quality prices.

Outside of major markets, the logic is much the same although prices tend to be a lot lower. Infill industrial, freight hubs and key logistic locations are the valuable pieces that make up a larger portfolio. Many private operators have spent a generation or two expanding these building networks to where the whole is worth more than the pieces. No matter how the investment partnerships and operating companies were formed, the buildings are analyzed for their cash flow potential.

Why now? Not only do portfolio values increase through aggregation, but there are also positive pricing effects due to consolidation. Portfolio theory demonstrates that there are rewards with larger scale. Lower costs of administration and management benefit beneficiaries directly. Scale, across a broad set of assets, reduces cost and expenses.

Big Data, particularly national parcel data, has an important effect on Portfolio Management.  Big Data and Analytics increase the ability to seek, analyze, and close on big industrial building holdings in very short time frames. This creates a layer of liquidity that is new for industrial building assets of this type. Because of Big Data sets and large values, the game has taken on new dynamics. For one thing, Occupiers have unprecedented advantage to leverage occupancy with ownership that yields tangible benefits. For portfolio owners, it’s the speed to monetize large asset pools that is a significant new innovation.

On the Buyer side, the top tier of industrial buyers is limited to a small handful of REITs, Insurance Companies, and  Private Funds who can write a check for $50MM or greater.  Below the top tier, there is a spectrum made up of different buyers and deals. Opportunistic, credit lease, multi-tenant, or tenant-occupied each have applications to larger pools and it is often the developer’s place to help the investment fit. In capable hands, a rough-hewed older industrial building can be turned into a well performing part of an institutional portfolio as long as it is bought correctly on the Spectrum.

Geography is another way large investors make price adjustments on the fly.  Certain major markets establish an index based on market size. Los Angeles, New York and Dallas are primary benchmarks. Other markets are adjusted accordingly into a national matrix. While these indexes are based on real numbers, thin trading in smaller markets leads to mispricing. As data improves and more experienced local analysis makes its way to decision makers, the business of large portfolios is more transparent. Knowledge of U.S. markets, access to product and personal relationships with leading investors make large industrial assets more liquid and valuable than ever before.

We advise, we sell, or we bring in our own deal. Please let us know if we can help with your Industrial Building Portfolio.

Thanks for Subscribing,

Jim Klein, SIOR


PS: Participation Available in Industrial Syndication – Infill Los Angeles

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Race for Space – The New Dynamism

Dynamic pricing is becoming a greater influence on space leasing and building sales. By dynamism, I mean fluctuating rents separate from conventional underwriting.  A “spot market” is emerging to satisfy demand for smaller, flexible, and elastic spaces. Many examples include Truck Yards, Warehouse Sharing, Creative, Cannabis, and other categories of sub-space where “street rents” are disconnected from contract rents.  WeWork and Amazon are two primary examples that contract with the Landlord at one rent, and lease out space bits at higher rents. Public Warehouses, Self-Storage, Swap Meets, Studios and Truck Yards operate along the same model by collecting additional rent by offering “alternative occupancies” with varying degrees of added services. The revolution is any building can be pieced out especially with easily acquired technology that can create “smart” buildings for automation, surveillance, and access.

Dynamic pricing is buttressed by space scarcities and rent surges. The L.A. Harbor is a perfect case where proximity, drayage costs, and labor unrest, results in dynamic fluctuations partially geared to seasonality but more to sheer demand. Unused yard areas that can be repurposed for truck parking are going for $.35 per foot and warehouse sections are approaching $1.00.  Long standing tenants and family owners are the primary beneficiaries by subbing out their unneeded space.

We sold this 25,000 square foot building two years ago to a Chinese investor and he created the closest example I have seen locally to a “smart” building. In order to sustain autonomous production, he installed 100% IP surveillance cameras, automatic doors and levelers, new power, fire sprinkler and Wi-Fi throughout. Because it is a 24-hour operation with robots, the owner built a small apartment upstairs so the entire operation can be centrally monitored and controlled around the clock. The building itself becomes a major input to the production process. In addition, once the electronic infrastructure is in place, sharing is simple.

Runaway Pricing:

Dynamism is just as clear in the scramble for investable assets. Many small partnerships or family businesses find themselves sitting on incredible wealth from secondary industrial properties they have acquired through a long, productive business career. Particularly in Southern California, the combination of high rents, low cap rates, upside potential, and high dollar values have attracted the largest investment funds to the region. Not because these are terrific buildings, but “B” and “C” buildings generate strong cash flows, in great markets, and can sustain reliable income. Investors receive a slight premium with steady performance and dynamic increases with hands on operations.

One opportunity for Owner/Users is the high price of Los Angeles real estate, soon approaching $200 per foot. It enables them move to Inland Empire, Las Vegas, or Phoenix, all quickly becoming a part of Greater Southern California. Many local companies can improve their operation at greater savings and still have a hefty profit left over. While I hate to see business decamp from Los Angeles, no one has a better national network of experience to accomplish a seamless, “pick up and move” strategy than I do.

Dynamic Trading Network

As speed ramps up, it will be important to have the platform keep up with dynamic space trading.  More and more it will be discrete electronic networks that will replace word-of-mouth and informal communication. Public Listing Services will always have a place, but the “electronic whisper network” is a practical solution to transact deals rapidly and still keep offerings confidential when necessary. Torrent networks, Slack, and RocketChat are a few of communication tools we are exploring. In addition, we want to replace the lumbering process of “papering” a deal by using faster agreements. For now, AIRCRE forms combined with a paralegal service based in India is allowing us more time for deals but is not the ultimate solution

Building a strong Digital Operation is the only way to maintain parity with dynamism. In our work stations, we combine field video, parcel information, and Salesforce leads to search for space deals that would otherwise not be “on the market”. In essence, we are creating space through Search and Spot Pricing.  Because of the velocity, we can often deal the space faster than listing it. While still crude on our end, Digital Operations is a remarkable return on investment. For the first time, customers are investing alongside of us to create richer communication and data platform to see those deals.

Please let us know what we can do to help.

Jim Klein, SIOR

101-109 W. Foothill Blvd., Glendora, CA 92807 – 5980 Square Foot Retail Investment – $2.25MM

5 Unit Retail Building at Signalized Corner of Foothill Blvd and Glendora Avenue
Annual Rent: $131,132.00
Expense Est.: $40,000.00
NOI: $91,132.00
Cap Rate: 4.05%

Asking Price: $2,250,000 – All Cash

Free Public Parking Immediately Next Door

Please contact Jim Klein, SIOR,; 310-451-8121;


2018: Dynamo Year Ahead for Industrial

There is everything going for it this year. Big Capital is heavily on the warpath with more cash than ever looking at older, smaller and tertiary property with as much effort as they do with “A” product. Occupiers are armed with low tax rates and incentives for new plant, equipment, and improvements. Technologists are advancing innovation to increase cash flows with robotics, automation, ecommerce and sharing. At the top, the Developer-in Chief is intent on making commercial real estate and U.S. Industry the biggest winners in the economy.

What does it look like on the street? Stressed conditions with very little space, surging prices, and nothing but cash.  Now that Occupiers have been ignited with favorable tax treatment, even more capital will be coming in. The biggest shortcoming is very little new product will be created. Instead Big Capital is looking for anything with yield and upside promise wherever it might be. When it comes to older, infill industrial, Big Capital will clash with Occupiers. There will be more big investment buys in the march to scale.

From the brokerage perspective, it makes turning over new product primary. Without Xcelligent, one of the main listing services that filed Chapter 7 before the Holidays, it will return us to a period of less data consolidation and more “open” and “off-market” listings.  The gap of market information will greatly reward those who can find product.  There will be less emphasis on traditional agency work and more on trading and transacting. It’s where we see payoff in digital operations.

Under this type of market action, Occupiers will continue to be disadvantaged. Conventional ways of facility planning will need to give way to “market opportunities”. Big Capital has so many tools on hand that conditions that deter Occupiers like timing, tenants, and environmental are simply adjusted in the price at closing. I see the return of a separate “User Price”, not seen since interest rates hit bottom and even a “development for sale” business.

While competition for assets will be intense, in a much different sense, Big Capital and Occupiers are natural allies. Without income there is no deal. Many large Occupiers regularly leverage their occupancy into favorable terms. Under the right circumstances, the few merchant builders left will sweeten the pot because a User-in-Tow is a meaningful advantage. Occupiers on the fence will finally “pick up and move”. They will leave California, avoid state taxes, expense a new development, and sell their old infill building for a big profit. Occupiers going asset-lite with contract production and ecommerce can also gain equity wherever their goods reside.  Even if you don’t take title solely in your own name, many partnerships will be created where Occupiers can benefit from Big Capital and new tax laws.

As the year begins, the sharing revolution continues to amaze. I see all sorts of unconventional space sharing in Los Angeles that are based on trust and IP-enabled security cameras. Landlords can earn more rent and Occupiers can control their space needs precisely. So far, most sharing arrangements are created organically through word of mouth and among neighbors. There is absolutely no market or exchange for shared spaces, but it might be the fastest growing part of the industrial real estate business.

Gardena, Los Angeles, Inland Empire, and across the U.S.
On Market/Off Market
Big Investors/Small Investors/Developers/Occupiers/Property Owners
Let’s make a deal in 2018.

Thank you and Especially to My Loyal Clients,
Jim Klein, SIOR

Using Spiders, Extractors, and Crawlers for Insights and Leads

Spiders, Extractors, and Crawlers are all software tools that go out and search metadata to retrieve results that can be helpful to your business. They are often used to search for emails. One popular tool, once endorsed by Mike Lipsey, president of The Lipsey Company, is the eGrabber, a lead generation software. I’ve used it for many years but customers have become so overwhelmed that I question the effectiveness of HTML mail any longer. So far, the tool I use that tracks emails comes standard in Salesforce and counts the number of times your email has been opened. This provides metrics that can refine your marketing program.

Spiders, Extractors, and Crawlers are helpful in other ways. I input search terms like Gardena manufacturing companies, California commercial investment properties, or new warehouse development, and while it works a lot like a Google search, crawlers search hundreds of search engines, not just those results that are contained on Google servers. The overwhelming problem you will face is a complete deluge of data that is almost completely impossible to parse unless you have a scientific way to manage all the results. I’ve found basic sorting and deleting can make a dent but not enough to be immediately useful.

Most non-technical people like me face two choices. Either buy tools that are specific and limited in their application or hire outside help with programing skills to extract more useful data.

Why would an SIOR want to bother with data extraction? Well, through data extraction I’ve found both tenants and deals I would not have found otherwise. In the world of high finance and hedge funds, data scientists pore over tweets, Facebook, and other data streams to acquire proprietary knowledge for trading purposes. Data management on this level is a major step to higher productivity.

I am not advocating hiring a staff of PhD’s to run your real estate analytics and build an empire. However, thinking about how you obtain data, process, and output it, will give you new insights and leads. My next step is to install Scrapy, a powerful and simple extractor. It’s written in Python, the language that runs kid’s toys like Arduino and Raspberry PI. But no, I’m not even suggesting learning that simple language. For a few hundred dollars, I found a Python coder on the internet and they will just give me a few basic commands I can use over and over to get the data I need. I’ve only skimmed the surface and am a novice myself, but data is a gateway to bigger and better deals.



Jim Klein, SIOR, Interview on Last Mile

“Some e-commerce players use their warehouses much like they use computer servers,” Klein said. “They figure out what the best space is, what the most valuable space is, and they time it so it is more seasonal. And that’s the revolution that is coming. You can monetize your warehouses and get more rents by sharing it with different tenants than you can just by getting one tenant.”

Entire Article at Bisnow

and attached The Rise Of Urban Last-Mile Logistics Brings Warehouse Renovations And Higher Rents – Industrial

Industrial Real Estate Observations- Fall 2017

The industrial real estate business keeps changing.  I pay close attention to trends because they lead to deals.  These are a few observations for end of 2017.

Lack of space continues. Partly because there is no more infill land to develop but also many occupants don’t fully mark their space to be market. If they charged themselves market price, space would be used more efficiently and, excess put up for rent.

There is pervasive institutional growth down to smaller and older buildings. While this means there is more professionally managed space better suited to tenant needs, these properties seldom come back for sale and reduce space for Occupiers to purchase.

Both the influence of corporate real estate managers and their corporate real estate holdings have diminished. The long-term trend to liquidate real estate assets is mostly complete. Once the dominant owner of industrial real estate, corporates now supply the cash flow that buoys development and ownership. European corporates favor purchasing but more for production facilities.

Cash deals are dominant. Except for SBA, I see very few financed deals. If buyers are borrowing money they do so on their own without any contingencies in the contract. If you can’t close quickly with cash, you’re not in the running.

Business expansion is moderate and growing. There are a few big winners in Last Mile and ecommerce but they undermine mid-level distributors and producers. Just what we saw happen on Main Street and now see in Retail, we will see in suppliers.

The market, particularly leasing, has become more transparent with listing services and many qualified brokers. Many sale deals however are done in the off-market, through relationships and by a lot of searching.

Surging rents come to an end. Many rents have doubled over current lease terms. But that trend cannot continue. Once you have hit the surge expect more moderate increases.  The strategy is to find those properties that haven’t surged but there are fewer and fewer.

Industrial Occupiers

Our most profitable area is the work we do for Occupiers in advising, searching, and buying on their behalf. We see the same pattern in many metros that we try to replicate. Corporates and Owner/Users leave the urban cores for more modern facilities closer to the outskirts. The math on the move generally works out to 50% more space for the same money. The old space is then backfilled with Last Mile or Creative. Large consumer products have mostly completed the transition but now it’s the turn of mid-size companies when they are looking to grow.

Moving from Los Angeles, my primary market, to the Inland Empire is a regular occurrence. Bay Area firms will go to Central Valley.  Close-in NYC industrial users located in Bushwick or South Bronx will move to Jersey City/Newark or south to 9A and even Philly. In Dallas you can leave the center and go to Alliance and parts north or South where there is a robust land development business. Chicago has the oldest industrial in the core. I always thought South Chicago, with a lot of manufacturing history, was a natural location. But Chicagoans see expansion on the South Side unlikely as compared to Romeoville or South Wisconsin. These dynamics are similar in every market.

My very general knowledge of U.S. industrial is due to experience and data we collect, but for in depth, on the ground knowledge, in every U.S. (and European) market, I only rely on local SIORs. Even if you and I never do a deal, my best advice, always use a SIOR for office and industrial.

One large shortcoming is the small amount of buildings available to purchase for Occupiers. This condition holds true across the U.S. Owning your own building was a standard way to build net worth but those opportunities are limited today. Most new developments are done in concert with financial partners who plan to keep the properties long term. The linkage between institutional capital and developers expanded after the 2007 Financial Crisis, when developers got tired of taking personal risk and institutions wanted secure return. The relationship is still strong and dominant. Institutional ownership overrides the demand for owner/user buildings.

A lot of our Occupier clients want to buy straight out. In other cases, some Occupiers don’t always want to go 100% but would like to make an investment in the property where they plan to reside for the next ten years. In those cases, they will allow us to leverage their occupancy and take in private investors as partners. It’s quite an opportunity to have even 75% leased because it assures the ability to raise funds.  The developer sells for the same price or better than he would get from an institution. The investor earns at minimum a market return with a tenant at the start. The Occupier pays market rent and earns a preferred return or other incentives for their leasehold.


After comparing industrial in many parts of the U.S. it’s hard to beat Gardena, particularly for smaller investors. Gardena is located at the center of the three most important transportation hubs in Los Angeles which are all connected by multiple freeways – 15 minutes from LAX, Downtown Los Angeles, and the Ports. Many of the best consumer markets are within 30 minutes in Orange County and West L.A.  Gardena is a large market and when greater South Bay is included, it’s bigger than most cities.

Opportunities are few. I may see one or two good buys per quarter, but because of superior location, all these buildings are readily adaptable to Last Mile and Creative.  Many buildings are still in the hands of business owners ready to retire. Others are in Family Trusts where they are clearly minimizing expensive improvements for lower rents as they maintain a comfortable generational cash flow. These are the situations institutional investors are seeking and explains why many come to visit. Size, they learn, is the biggest obstacle. Because buildings run small in Gardena, it’s difficult to justify the time big investors need to spend. This is a clear opportunity for smaller investors.

Smaller investors have another advantage. In a small building market, simple improvements can increase the rent way beyond their cost and boost yield significantly. Thoughtfully designed space divisions. Separating yard from building. Patios, Gardens, wifi, new bathrooms and showers. New   windows, light, and skylights. These are some of the minor improvements that don’t cost a lot, but add value in a personal and creative way that tenants prefer.

Rents in Gardena are hitting $10.00 per year Net. At a 5% return, depending on conditions, $200 per foot is market price in many average cases for a sound investment with long term credit tenants. Sounds astonishing until you realize returns over time are positive but not spectacular. Over 35 years prices are up about 4.7% annually in nominal terms while inflation averaged 2.7% annually over the period. Cap rates at 5% are compared to 20-Year Treasuries at 2.6%. Adding real appreciation and yield together, Gardena industrial produced a positive 5% combined annual real rate over the past 35 years unlevered. About the same as the S&P 500 over roughly the same period.  Since many of my investor/developer customers demand more profits, they will take opportunistic risks by buying right, redeveloping, and operating shrewdly.

There are risks from a meltdown when activity freezes. I have seen it happen three or four times in my career. There are many explanations but all share a lot in common. Capital freezes up, tenants start going out, and prices drop.  Building owners with a lot of equity and little leverage can normally survive by reducing rent. In cases with a lot of debt, recessions normally outlast reserves and result in restructuring. Luckily, in Gardena, buildings are small enough with a lot of equity, the effects of a downturn are muted.


I’ll be heading to Chicago next week for SIOR. I’m the founding Chair of the Industrial Group so we get to examine many industrial markets and properties close up. Because so many major markets have been bought up, we’ll be examining secondary and tertiary industrial markets. This is will be a double session led by the MIT Center of Real Estate. Not only are businesses interested in these towns and regions for overlooked human resources, but they are the pockets that have not seen the rent surges. We will also be examining Capital Markets and ways to structure deals for our personal accounts. I’ll have a short report when I return.

Thank you to my clients and customers for all your support.


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