Mark Childs 0:01
It’s It’s It’s probably similar to apartments, um, although syndications less, probably more the REITS that are formed to accumulate money in, there’s a lot of money on the sidelines and they go down to LA and look and they’re getting sub four caps and they go up to Seattle and they’re getting just over four caps and they show up here and then get a five cap. And so they jump in.
Announcer 0:36
Welcome to CREPN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast. Whether you’re an investor, broker, lender, property manager, attorney or accountant, we’re here to learn from the experts.
J Darrin Gross 0:55
Welcome to Commercial Real Estate Pro Networks, CREPN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. Today my guests are Mark Childs, Principal at Capacity Commercial Real Estate, where he specializes in Industrial and High Tech real estate brokerage services. And joining mark our two members of his team, Daniel Sayles, and Daniel Helm. And in just a minute, we’re going to speak with them about the industrial real estate market and what to look for in a broker. But first, a quick reminder, if you like the show, CREPN Radio, there are a couple things you can do. You can like, share and subscribe. And as always, we hope you’ll leave a comment. We’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And you can find this at Commercial Real Estate Pro Network. And as always, we encourage you to subscribe without on Welcome my guest, Mark, Daniel and Daniel. Welcome to CREPN Radio.
Mark Childs 2:22
Thanks, Darrin.
Daniel Sayles 2:23
Thanks for having us.
Daniel Helm 2:24
Thanks. Glad to be here.
J Darrin Gross 2:26
I’m looking forward to our talk today. But before we get going on the industrial real estate conversation, if each of you could share just a little bit about your background.
Mark, you want to start
Mark Childs 2:43
Sure I’m Portland native. Ran down I graduated Marshall high school they closed it because of folks like me, Oregon State. IE degree, Portland State MBA and did the PE thing and was actually a partner at an architectural engineering firm up the Seattle area. We specialized in the design and construction of mechanized automated manufacturing and distribution facilities started having kids I traveled too much. And so I moved back to Portland, where I could still play with warehouses, but actually sell a warehouse that someone could touch rather than the design services. That’s kind of it.
J Darrin Gross 3:33
Got it. Daniel, which one we’re gonna go first?
Daniel Helm 3:36
I’ll go first Daniel Helm of born and raised here in Portland, Oregon, had the opportunity to go down south to Louisiana State University to get my degree at a scholarship. I was a part of the swimming and diving team there. And you know, doing jumping off high things making it look nice in the way down was my forte made my way back to Portland back in 17 2017. And been in commercial real estate ever since. And been working with Mark and Capacity for about two years now specializing in industrial warehouse and manufacturing spaces.
Daniel Sayles 4:15
Daniel Sayles, collegiate athlete as well, I grew up in the great state, the Dairyland of Wisconsin kind of moved around but made my way here with my fiance. Work with Mark for about a year now and Daniel for about a year not just loving industrial life.
J Darrin Gross 4:33
Alright, so let’s talk about industrial real estate. I guess the first thing that I’d like to do just to try and set the parameters. What How do you guys define industrial real estate?
Any one of you?
Mark Childs 4:56
Well, it kind of comes down to You know, is it a warehouse or a manufacturing facility. And so you, you get into subcategories. There’s, you know, medium distribution, some amount of office, maybe out front dock doors out back. And, you know, it’s it’s semi friendly, but you can tell it’s a warehouse, there’s a heavy distribution gets up to 100,000 plus square feet, we’re getting into some 500,000 square foot product here. And that’s just a wall of dock doors on one side, probably a wall, a doctor’s on another with a little bit office in the middle, and then there’s flex space, which has got more office, maybe dock high, maybe not tends to be think of when you’re driving around out in Hillsboro. You know, they’re concrete till but they’re not that high. So that’s a bit of definition.
J Darrin Gross 6:00
And you mentioned square footage as much as 500,000 square feet. Is that one of the larger? I mean, that seems pretty big is it?
Mark Childs 6:08
For the Portland area, it is for LA Inland Empire, it’d be a small one, they usually build among million at a time, but five hundreds pretty ballsy around here.
J Darrin Gross 6:19
All right. And if I guess, looking at the current landscape with the the economic cycle, you know, I don’t even know how you describe the cycle right now other than this is like, there’s an interruption in what’s been going on based on you know, you had a strong economy meets a, a virus in response to the virus kind of thing. Can you describe what you guys are seeing as far as the, the the marketplace today? And then maybe take us back, like pre COVID? And is there been any significant change in the marketplace as far as demand usage?
Daniel Helm 7:07
Yeah, so I’ll take a swing at that and Mark in Salyes, feel free to chime in when you see fit. You know, when COVID first happened, there is definitely a hold in a standstill, I would say for a solid month or so where people are really putting on the brakes. And then the national groups, the institutional guys were starting to resurface groups over 100,000 square feet, we’re starting to get reengaged and things still need to happen. leases still need to go and people are still looking for space. I would say in the past month and a half or so recently, anyone under 50,000 square feet kind of more than local people here in the Portland metro market are really engaged and back on and people are out there looking for space. Leases are still expiring, things still need to happen whether they’re renewing or looking for additional space. It’s it’s hot right now.
J Darrin Gross 8:03
And and with that, you know, there’s been depending on the asset class, I haven’t heard so much about industrial having any issues but I know like retail is one of the ones that there tends to be kind of a siren or office just based on the the position of people or the inability to operate a business in some of these these asset classes. Has there been any effect positively or negatively on industrial given the the COVID?
Mark Childs 8:40
You know, so far I’d say no. It historically we’ve been running about 3 million square feet of net absorption a year. And as Helm mentioned, coming into first quarter this COVID thing starting to hit folks kind of took a pause we scored minus 200,000 net absorption first quarter, second quarter we hit 1.2 million positive net absorption so that’s a million first half we do a million second half or two thirds of what we’ve been running at and and you know part of that strength is quite simply a lot of it is as you’re referring to retail isn’t looking good. What the virus has done is it’s accelerated trends and and kind of implemented others. The the bricks to clicks trend has been accelerated. Folks used to go and to stores with bricks now they shop from their house that takes warehouses it takes transportation equipment, transportation equipment needs industrial land to park on. We came to realize that with China providing everything of a product that’s not good. Folks are reshoring, we’re doing more manufacturing here. Supply chains running just in time are realizing, oh, we can’t be that just in time, we need some buffer in the system, that’s more warehouse. And oh, by the way, if you want to compete with Amazon, you just can’t have two warehouses, one in the LA basin and one in Atlanta anymore, you probably need eight of them, which means you need a warehouse even clear up here in the far northwest. So no, the cap rates on good institutional products have been at or below 5% and have every reason to believe they’re going to stay there.
J Darrin Gross 10:45
You mentioned kind of the some of the demand, you know, change as far as like comparing the retail to just, you know, the shifting of business and then and, and the demand for additional warehouse or, you know, industrial space. Is that that 3 million square feet of net absorption? Has that been a historical standard? I mean, just, I mean, the Portland metro for a number of years, or is it?
Mark Childs 11:19
Ccoincidentally 2019 18 17 16 we came plus or minus practically 10% of about 3 million. I think it’s the result of a just a steady two to 3% growth in GDP, a steady growth in people three 4% coming into Oregon, and you know, what was previously already a bricks to clicks transition, but just maybe shifting at a slower rate.
J Darrin Gross 11:55
Got it. And and with the the steady increase for demand, is there. What’s a market vacancy rate right now?
Daniel Helm 12:04
I think we’re at 4.2%. Market wide.
J Darrin Gross 12:08
Has that historically, how does that measure?
Daniel Helm 12:13
It’s still really low comparison. Obviously, some sub markets like Clark County is
Daniel Sayles 12:18
Clark County’s 1.6.
Daniel Helm 12:22
So it’s just it’s vary depending on where you’re at and what sub market you’re trying to look at whether you’re Westside, Beaverton, Hillsboro area, or if you’re trying to go up to Clark County, Vancouver area, out east side ECC, which is the East Columbia Corridor, which is going to be a little bit higher, a lot more speculative developments being built out there. So there’s some more warehouse buildings, and then kind of down the Clackamas Milwaukee area, it’s a little bit lower down there. But as a total of 4.2% is still very low and landlord favor.
J Darrin Gross 12:54
Got it. And he mentioned Clark County. You know I know there’s there’s all sorts of tax issues, and I know like in multifamily is all sorts of, you know, tenant friendly issues. Is there a move? Or is there a reason for investors to look in a particular sector of the market more so, I mean, is there more incentives to be in a particular market right now? Or is it more just about where you need a space?
Daniel Sayles 13:32
Yeah, I’m what I’m seeing in Clark County, mostly it’s people are a little fed up with the permitting process and just the the business points of doing business in Multnomah County it’s just a collective feeling that, you know, they’re kind of getting pushed out. They’re making lower margin, or as you know, you move move across the river, your employees automatically get a 10% raise just based on you know, income taxes if they were to relocate over there. So, when I’m talking to small business owners and people running warehouses is typically that they’re fed up with, you know, paying different fees. If you know, they’re by the river, they have to pay a fee because they you know, they’re close to a sewer that drains to the river. Just different environmental reasons. That’s what I’m seeing, at least, I know Mark and elaborate a little bit further.
Mark Childs 14:30
I guess the phrase I use, I’m a fifth generation Oregonian, but in 30 years, I’ve moved hundreds of jobs north of the river, none South if you’re an investor, um, I mean, we’re seeing it in the statistics set starting to show up San Francisco, New York. Other urban cores if you can work virtually, why do it in an expensive location. And Clark County Schools are heralded as being Great. It’s a tax friendly environment. I think folks are going to be moving up and populating apartments in Clark County and shopping. And I think retail in Clark County is going to be much more vibrant than, you know, Portland’s urban core and even the surrounding Multnomah County area.
J Darrin Gross 15:25
Yeah, it’s interesting, just how that, you know, the policy shifts. You know, I just say, so I scratch my head, how the policymakers don’t seem to understand, you know, the supply and demand thing, and that it’s not, it’s not forever, it’s not automatic, you know, you’ve got to make it in an incentive or enticing for people to want to be there, as opposed to just because you know, that you can collect more because they’re making more kind of thing. You know, it’ll be interesting to see how that shakes out with all of these new rules and, and no taxes and that.
Mark Childs 16:04
Kind of a catch point for me, my son. I just sent him down to Santa Clara. So he wouldn’t go down to Eugene. I don’t want to get political here. But so he ended up staying down there a starts a high tech company, virtual 20 30 employees, eight runs it out of his extra bedroom in San Francisco, it’s a cool place to be. In six years, his rent goes up 25% per year, year after year after year, he moved twice. He only rent only goes up when you move. But a year ago, pre virus, he’s now married, he’s got a kid, guess what, he moves back up where he grew up into the suburbs. And so I think that transition in the millennials that are now having kids, what’s going to happen anyway, I think this is accelerated it. And lo and behold, this weekend, I’m looking in the weekend Wall Street Journal, in San Francisco. There’s twice as many listings now than a year ago, Apartments for Rent rents, that now compared to a year ago, are down more than 10%. And study says that about 50% of the respondents said that as someone who can work from anywhere, I probably will not live in a town where I have to pay 5000 bucks a month for a two bedroom apartment.
J Darrin Gross 17:30
Hard argue, I mean? Yeah, it is interesting. And I know, I would assume that the the job climate historically based on the the pay, you know, and the want to be there, and the need to be there somehow supported all that. But it is an interesting, kind of a Rubik’s Cube as you undo that, you know, how the how all the pieces, you know, change and the repricing of the assets based on demand, and it will be an interesting thing to watch. And industrial space. I mean, you know, in Portland, you guys consider is Portland a tertiary market or secondary market? How do you how do you?
Daniel Helm 18:20
I would say tier two.
J Darrin Gross 18:22
Tier two?
Daniel Helm 18:22
Yeah.
J Darrin Gross 18:24
And do you see more and more? You know, we’ve talked about growth, and I took that to mean more of just kind of a net migration of, of, you know, households that then correspond to the demand. But are you seeing is there any, like Seattle moved to Portland or San Francisco moved to Portland, based on companies are they they relocating in the Portland metro?
Mark Childs 19:00
Well, um, it’s for us, it’s, it’s probably more the, oh, by the way, we now need a warehouse in the northwest so we can at least deliver next day. And we’re looking in Seattle, Kent Valley, or the Portland area and now the Kent alleys pretty well built out. They’re almost down to and through Tacoma to support the Seattle area and, and so they they end up here because we’re less expensive and at least you can locate in one of the urban areas and drive to the other one. So but office certainly for as crazy as it is in Portland. We often joke that we’re still the cheapest place on the west coast and we are in office. The backup back office of choice. So when Amazon decides that they’re going to get into grocery stores, and they need 50,000 square feet of office to support grocery store operations, they just run down here and rent one of the new buildings that are constructed. Similarly, Salesforce, whatever, you know, they can’t find space, they’re looking, it’s 75 bucks a foot, they’ll go, Oh, well, here’s a splinter group that we know is growing. Let’s just run them up to Portland and we’ll lease 30,000 square feet. So Portland office is interesting in that there are very few vacancies greater than 20,000 square feet. But if you go out looking for 10,000 square feet, the urban center, you’ve probably got 30 alternatives.
J Darrin Gross 20:55
Gotcha. Let me ask you about ownership of the industrial assets. And I know a lot of people I talk with tend to be kind of multifamily oriented, just because it’s been kind of the the buzz as of late. And a lot of times you run into whether they be individuals that are buying an asset, or maybe they’ll partner or in some cases syndication kind of thing. Do you? Or is the ownership similarly structured? I mean, there are a lot of individuals that own the assets, or is it or do you find, especially the larger ones? Does it tend to be a REIT? Or is it tend to be syndication? Or can you speak a little bit to that?
Mark Childs 21:43
Ah, it’s, it’s, it’s probably similar to apartments. Although syndications less, probably more the REIT’s that are formed to accumulate money and, there’s a lot of money on the sidelines, and they go down to LA and look, and they’re getting sub four caps, and they go up to Seattle, and they’re getting just over four caps. And they show up here and then get a five cap. And so they jump in probably 10 million and above, very likely that size I don’t know, maybe they do this in apartments. Also, we’ve got folks that use the phrase, I run around and buy bottles of beer. And when I put them in a six pack, I can sell them for more than I paid, per beer. And so there’s an assemblage that, you know, the closer you can get to New York money, the further you are from having someone that really knows what they’re doing. And they just got inventory, they got a place somewhere called money. There are, you know, kind of in the million to 10 million range, there’s strong local investors that that play in that marketplace. And so it doesn’t take too long if you’ve got something like that to kind of figure out who you’re supposed to be talking to.
J Darrin Gross 23:20
Got it. And in, is there any kind of percentage guess, if you were if you were to guess, as to of the assets that are leased versus owner occupied? Do you have any sense of that?
Mark Childs 23:37
We, we tend to track leased. So that’s a tough one. We’ve got over 2 million square feet of warehouse that we track that’s leased. You know, you throw in an Intel a Precision Castparts. A Boeing and that gets pretty tough, but I suspect maybe a little over half is owner occupied. Maybe 60% 40% leased, but the owner occupied are usually the real heavy capital intensive industries that, you know, have been here for a long time probably will be here for a long time. Hopefully,
Daniel Helm 24:19
Yeah, I’d agree with Mark out of the 200 and 8 million square feet that we’re tracking I would say 40 45% owner occupied and the rest is institutional.
J Darrin Gross 24:30
Got it on on the ownership of the properties. Is there quite a bit of trades? I mean, are people buying and sell on regular basis? Are you guys are you do you? I mean, if let me ask you this way, percentage of your activity. If you if you could give us a percent. How much of your time is spent in the leasing versus the this sale of properties.
Daniel Helm 25:03
I would say for me, I’m probably 70% leasing, 30% sales, focused on tenant representation. Owner users looking for buildings potentially trying to get out of leases and looking for opportunities pretty hard right now in this market to find spaces that makes sense for them and their business. But there’s a lot of guys out there sitting on the sidelines with some cash that are looking for those opportunities. But I would definitely say I do a little bit more leasing than sales.
Daniel Sayles 25:32
I’d have to agree with them on right there and roughly the same percentage.
Mark Childs 25:38
Good breakout,
J Darrin Gross 25:40
That true for you to Mark the percentage there?
Mark Childs 25:43
Yeah, I have often joked and I think it holds to this day that I spent two thirds of my time leasing to make one third of my money, I make one third of my time on sales to make two thirds of my money. We tend to make more. The product, the challenge is that the product very rapidly gets up to where, you know, it’s institutional money. buying one z two Z’s, and when they go to sell, they sell a six pack, and there’s just no one around here that can afford that. And, and that’s just kind of goes through the capital markets. And, you know, the top 500 kind of know who each other are, and they tend to talk and, you know, they’re just doing transactions. The owner user, probably someone we deal with more. The challenges is when someone finds and buys a nice industrial investment, don’t want to exaggerate, but it’s basically they never sell it. Because it just becomes a coupon clipper rents go up, if their toilets plug, they fix it, they don’t want to talk to their landlord. Landlord doesn’t want to talk to them, they just send checks.
J Darrin Gross 26:58
No, I was gonna say, as a landlord, you know, relationship, that’s probably the most desirable I know, from an insurance standpoint. You know, commercial tends to be more uniform, and that you’ve got tenants that are operators that have insurance and triple net leases are fairly common. And, and, you know, I would think that as a landlord, that’s pretty, pretty good stuff. On just looking at some other some ideas I had wanted to ask you about looking at, like development of, you know, you mentioned the the 3 million square feet cut around number. What, is there a specific kind of an area? Or is it a specific land requirement? Or what what would somebody if they’re looking to develop a property? What are we? What are we looking for? would be I mean, access land? Is it pre zoned this way? I mean, is there all of the above or
Mark Childs 28:04
Give it a shot?
Daniel Helm 28:05
Yeah, so I would say, you know, obviously, for industrial needs to be zoned a certain way. You could be light industrial, potentially business park or heavy industrial, a lot of the users we play around with that are the manufacturing slash distribution, guys, heavy industrials, a win win for us. So those kind of vacant lots of land, which they’re not many, not many tier ones left, there’s some tier twos and a lot of tier threes, where there’s a lot more work, whether that’s wetlands mitigation, or things of that nature. But I would say a good gauges, five acres, hundred thousand square feet, plus or minus a little bit coverage ratio about 33%. Minimum plus or minus there, too.
Daniel Sayles 28:47
Yeah, and as far as you know, you touched on it about access, a lot of the groups that are hot right now they’re developing, they’re looking for distribution users, you know, the Amazons, you know, etc, but they want access to the freeway. They want to be able to get on and off, they want their truck drivers to not have trouble finding it, and just making it as easy as possible for them to get on the road and get to the next destination.
J Darrin Gross 29:13
Yeah, you know, let me ask you this too. I know with development kind of lead time. What kind of lead time if somebody identifies a property and closes on raw land before you know, you get a usable leasable space? Any kind of an idea on that
Daniel Helm 29:34
Before COVID or post COVID? Or both?
J Darrin Gross 29:38
Yeah, give me both.
Daniel Helm 29:39
Yeah, you know, Mark, correct me if I’m wrong here, but I would say minimum, you’re going to be anywhere from nine to 12 months depending on when you start but realistically, more in the 12 to 14 month range from when you locate a property and actually having a something built and the tenant or user being able to occupy that A space.
J Darrin Gross 30:02
That seems pretty fast I mean I’m I that as opposed I was just knowing the the the political machine and all of the permitting and stuff I I’m always amazed at how just the the wheels of progress turn kind of slow it seems like and that you think like a 50,000 square foot building you could get that up and you know a little over a year. That’s a
Mark Childs 30:28
That’s, that’s not the City of Portland Probably not. I can’t say Multnomah County because you can’t get a permit through Multnomah County any more annexed by someone else. We tend to work in the smaller burbs around, you know, Richfield, Troutdale. Hardly anything left in Clackamas, but Canby, Sherwood, where they’re a little more friendly. And, you know, 18 months, by time you get into some delays, potentially City of Gresham has a fast track, if you’re building something big, that will bring a lot of jobs. But I’ll tell you this, that I just couldn’t comprehend to having the guts to do office wire, you know, it’s four years, you could go through two business cycles before your products done. But, you know, no, industrial is fun, because you can almost see the finish line when you start unlike a lot of other development.
J Darrin Gross 31:29
Yeah, I was gonna say it just from a standpoint of actually feeling like you could hit your numbers, like you mentioned, the, you know, two cycles before you even have a product there. That’s, that seems a whole lot more risky than having, you know, a year or so invested in it that that seems a you know, pretty, I would think that a lot of investors would be attracted to that just that shortened time frame to have a product for lease. Let me ask you on as a broker, can you describe some of the issues that you guys deal with? Maybe one of you talked about from a landlord side, maybe one from a tenant side, and then maybe another from the transaction, kind of a purchase sale?
Daniel Helm 32:21
Yeah, I’ll talk about the user side. So you know firsthand what I’m going through now, with a couple of my buyers that are out in the market, they’re looking for certain sites that unfortunately don’t exist. And as things do, the numbers that some of these sellers want for the property is just unreasonable. So managing everyone’s expectations, and trying to get to a number that makes sense for both parties is always the challenge. But as long as you’re managing your clients expectations, helping them understand, hey, this is the reason why they think it’s This is why you think it’s that and try to meet somewhere in the middle, I think too being a tenant rep guy. And working with leases, lease rates are starting to become so high that the smaller groups that have such low margin, are having a hard time penciling that and making it make sense to even move out of their current location. Even if they’re jam packed and they need extra space. It just doesn’t make sense. So just depending on what market you’re at, and where you are in the Portland area, the lease rates are continuing to rise. And we’re kind of starting to see them steady a little bit. But they’re still very high for industrial space, just shell rates right now.
Daniel Sayles 33:35
And I think that leads back to the supply and demand, right? We went over, you know, the vacancy rates, I mean, these landlords can pretty much ask what they want, knowing that someone will pay that price. And that’s what I’m seeing over in the Vancouver market in Clark County is that, you know, it might be a high lease rate, but they’re the only game in town and they know it and they hold strong to it. So from that standpoint, you know, from the tenant rep side, it can be difficult in communicating that to your clients without hurting their feelings, you got to give them some love, make them feel the love and know that you’re on their side, but there’s only so much you can negotiate and you can try to get free rent for him. You can try to get other concessions, but at the end of the day, that landlord is gonna you know, they’re gonna they’re gonna hold their cards in tight and they can.
Daniel Helm 34:21
They know that someone’s gonna be right behind you knocking on the door.
Daniel Sayles 34:24
Ditto.
J Darrin Gross 34:26
Let me ask you real quick just on that that issue there about tenant landlord thing. With lease rates been one one issue, our landlords being a lot more picky about whether it be creditworthiness or you know, are there some issues that they look to when they’re when they’re considering prospective tenant?
Daniel Helm 34:49
Yeah, I would say that’s always a question especially, especially recently as everything’s going on with a pandemic, you know, due to the risk factor of having a new tenant come into space and if they’re gonna do a certain amount of tenant improvements in the space and invest long term, they want to make sure this tenant is viable and able to one pay the rent to a long term user, someone that’s going to stick around. And I think the credit of that users is very important, not the only deal point, but one of a few that they definitely look at through the process.
Daniel Sayles 35:22
And there are ways to get around, you know, not having bulletproof credit, you know, you can offer more security deposit, you can offer a personal guarantee, but there’s creative solutions there. It’s just if the landlord is willing to work with you on those, it depends if it’s a institutional landlord or a local owner, or it just depends on the situation.
J Darrin Gross 35:44
Let me ask you this, just based on the current situation with COVID. I haven’t heard much about any industrial issues with with rent. I know, it seems like there’s been a moratorium on anyone paying any bills for most of the governor’s I know, between multifamily or residential office commercial, I’m under the impression that, you know, I don’t think a landlord can evict anybody unless I think that’s supposed to change, you’re pretty quick. Has there been any issues in the industrial space?
Daniel Helm 36:22
I think originally when COVID first said everyone was, you know, arms up, like what’s going to happen? What’s what’s going to be done about this. And there was ideas where you could give some abated rent, and then just add that on to the end of the lease term. And that was one of the options that my client actually worked out with his landlord, but it definitely depended on case by case basis. And it was ultimately the landlord, if a tenant needed help. During this time, there needed to be some vulnerability there at the tenant sharing a, this is what we’ve lost due to COVID not saying hey, this is what happened. It’s a show me your cards, I’ll show you mine kind of thing. So that transparency factor was huge, I think during this time as well.
J Darrin Gross 37:07
No, makes sense. Um, Mark, do you have anything to add on the kind of any issues with buy sell?
Mark Childs 37:16
Ah, I, two things kind of came to mind one word that point in the Greater Portland metro area where the easy sites are gone. And now they’re the tougher ones and those as concept industrial called shovel ready. Where streets, sewers, sidewalks, everything’s in. And when you sell that property, it’s worth x. And then you start working with someone who’s decided to sell their land. And they know that property selling for x, and they’re like, Yeah, well, my property’s worth x. But then you go, Well, no, hang on, to create a flat site, and to put in, bring a sewer in from a quarter a mile away and do roadways. You know, you’re looking at four bucks. And so really your property’s worth that, you know, x minus four bucks, that can be a hard education. Wetlands are always a challenge that can take a year to four years, I closed one early this year that we battled for four and a half years. Here’s another interesting challenge and Helm kind of dwelled on it a little bit, folks think they’d like to grow, and they want to move because it could and they could get bigger, when they start looking around and realize that it’s going to be a lot more expensive, especially for the local local folks, which I love that make up the heart of our business, but also because they can’t find employees. I mean, I’ve got a client, what 200 employees that I happen to meet with weekly in a business association group. And every week he’s looking for 20 to 30 more employees. In part because fully loaded, the folks are getting about $50,000 a year off the old unemployment with the feds chipping in 600 bucks a week. And right now that number has dropped to about 35 but you know, I don’t like the term minimum wage. I call them beginning wage jobs that you know, at 15 bucks an hour you’re looking at 30 grand and folks are still staying home so I mean, that’s a real challenge in the industrial sector right now.
J Darrin Gross 39:39
Yeah, no, I the wage and all that that’s that’s a tough thing. I mean, the probably another whole nother episode here.
Mark Childs 39:50
Yeah. Yeah.
J Darrin Gross 39:53
On I guess, let me ask it this way. So A lot of the listeners, I know that I’ve talked to one on one, I don’t know that everybody’s always looking industry, I’d say the majority of people, I’ve just thought more of how to get into real estate as an investor and thought more of multifamily or something like that. If if there was a piece of advice you could recommend somebody consider if they if they’re wanting to get into industrial Is there a starting point that you would recommend?
Daniel Sayles 40:32
Call us
J Darrin Gross 40:34
Why that’s a good one.
Mark Childs 40:38
Here’s your here’s the challenge of industrial. You know, again, you get 100,000 square feet and up. And, you know, you’re, you’re dealing with a pure cap rate game, what happens is, even with, um, let’s say we’re talking 50,000 square feet, and that’s going to get you 60 cent rents 720 if you want any kind of a cap rate, you can maybe pay 110 hundred 20 bucks a foot and come out, maybe at a five 6% cap. The problem is users are walking around going, let’s see, I could buy this 50,000 square foot warehouse, which is pretty vanilla shell for maybe 150 bucks a foot, or I could build one. And right now those things are trading warm dark shells, at about 150 bucks a foot. So the users are bidding up everything less than 100,000 square feet, and it makes it tough for investors to get involved. And quite simply about the only way to get involved is is they’re going to need to suck it up and they’re probably going to have to lease an empty warehouse. And what can I say trust that they can get it leased up, which fortunately, they are commodities that have given rate not unlike apartments, not quite as commoditized. But you know, that’s that’s probably where they’re going to end up and the risks they’re going to have to swallow
J Darrin Gross 42:28
No, that definitely supplying and demand and and you know, just the concept of the tennts actually being a competitor you know, based on their their growing needs. That’s good. Is there a typical or ideal client that you can describe?
Daniel Helm 42:49
The guy that actually has a problem so there’s a lot of people out there that are looking for opportunities, but there’s a guy that you want that’s looking for additional space that has the opportunity and the end game to grow into that space and you know, there’s no down the fairway opportunity by any means but a guy that knows what he wants and either you know makes the decision or fails fast to get to the no. So you want to be able to juggle opportunities because things come on the market and they go off just as quick so when you present an opportunity you want someone either tell you no or yes and not play around in the middle.
J Darrin Gross 43:30
No, sign me up for those, right?
Daniel Helm 43:33
Right?
Mark Childs 43:36
Yeah, probably for me because of my background you know, you can you can sell 100,000 square foot warehouse it’s sitting there pretty simple I’m I’m kind of codependent have a need for pain brain and agony. What is our part of the team as we complement each other? I’m pretty good at is helping people with the complex, usually manufacturers often requiring a Greenfield build to suit in as much as most of the product out there is plain Jane warehouse without any electrical, with minimal gas speed, with no water distribution, with no floor drains. And so what looks like a cheap solution to begin with by the time you get done modifying a building for a complex manufacturer ends up being the most expensive alternative
J Darrin Gross 44:40
I you know I appreciate you sharing that because I think that’s something that it kind of goes back to what you were talking about before about the the guy who knows the one property that was shovel ready sold for x and he thinks is it’s unimproved is ready for you know with that as well and he said that perception and it but having something somebody that knows the difference and can can explain it can save them a lot of, you know, time and pain and money that they had been, you know, expected to spend, I always hated when I don’t hate it, but it’s just, it’s something I try and talk with clients about that are new to any kind of construction, just the, you know, it’s gonna be a while before you actually know what you’re doing kind of thing or, you know, just the whole how it all works, and the time it takes and the money it takes and all the the second one will look a lot different than the first one. And the third will look different. And you’ll you’ll see things differently, and then recognize the those things you didn’t before. So appreciate.
Mark Childs 45:40
I know, I mean, you’re in the risk business, risk mitigation, one of the way you do that is with insurance. But sometimes the lowest cost insurance isn’t the best way, for a total systems lowest cost to mitigate risk. And so we, you know, we we don’t make the decisions. We don’t sell anyone anything, we just do the best to educate our client on what’s out there, because they’re the best judge of what they need to do to solve their problem at hand.
J Darrin Gross 46:11
Oh, no. And on that note, good time to segue into my question, I like to ask all my guests about risk. As we’ve stated, by day, I’m an insurance broker and trying to work with clients and assess risk, you know, what to do with the risk. And there’s there’s three basic strategies we typically look at. And the first that we asked him, we avoid the risk. That’s not an option, and we look to see if we can minimize the risk. And when that’s not option, then we look to see if we can transfer the risk. And that’s what an insurance policy is. I like to ask my guests, if they can take a look at their situation, whether it be you know, the way they work with clients, their their clients, or just the market the industry and identify what they consider to be the biggest risk. And for clarity, I’m not looking for an insurance related answer. But if you guys are willing, I’d like to ask you, Mark Childs, Daniel Sayles, and Daniel Helm, if you could identify what is the biggest risk?
Daniel Helm 47:29
I can go first on that, I would say the biggest risk would be not making that last call. One more call that potential opportunity, at the end of the day, at last dial the day, the easy dial to just say, Hey, we’re not going to do it. potential opportunity to help a client prospective client, someone that you know, has an opportunity, but all you need to do is pick up that phone. So to not make that last dial is huge. And one thing we preach here at Capacity is one more call.
Daniel Sayles 48:07
Yeah, mine kind of ties into that as well. For me, the biggest risk for me is always being uncomfortable. I feel like in this job, if you’re comfortable, and you think you know everything, there’s something you’re missing in the deal, there’s something that you’re not asking the landlord, there’s something that you’re not asking your client. So sometimes I just like getting uncomfortable and maybe asking the landlord for something I typically wouldn’t do or asking my client, you know, or a prospective client when I walk into their business and talk to them. Just having that conversation with them and letting them know that I care and it might seem awkward at the time but it’ll go far, you know, down the road if they start working with me.
Daniel Helm 48:47
Get comfortable being uncomfortable.
Daniel Sayles 48:49
Yeah.
Mark Childs 48:52
I would put it you know there’s lots of risk everywhere. But to keep it simple, you know, in the biz, when you’re out showing someone a property to start with the difficult questions. What What is the sprinkler rating here? You know, what is code? Will this use really fit here? Okay, it’s a multi tenant Park. That looks like a lot of space. Let’s go out and pace it off? Is that really enough room for your trucks to come in? You know, a conventional sleeper with a 53 footers 72 feet that takes a lot of room. Oh, by the way, you’re gonna have a lot of parking. It looks like there’s parking now, but we got to learn about the tenants nearby how much parking they’re going to need. The flip side on the biz, I think what I’ve learned through the years is don’t try to do something that you’re not good at. I’m blessed, I have a lot of people calling me through time for advice on their real estate problem. And more often than not, I’m, I let them know yes call me first but by the way, odds are I won’t be the one solving it but I’m going to know who to recommend for solving that. Not much anymore retail, restaurant or other food group category a problem.
J Darrin Gross 50:30
That’s that’s a good advice on all points or appreciate that. Let me ask you, Where can the listeners go? If they would like to connect or learn more?
Mark Childs 50:45
Industrial Gurus NW. Industrial Gurus NW? https://www.industrialgurusnw.com/
J Darrin Gross 50:54
Got it. And you guys still put out? Is it a monthly or quarterly newsletter? I can’t remember.
Mark Childs 51:02
It’s quarterly, and it just came out and it’s, you’ll find it just click on blog.
J Darrin Gross 51:09
Alright, well, I can recommend it to anybody that’s considering it. I’ve seen it. It’s good stuff. So with that, Mark, Daniel and Daniel, I want to say thanks again for taking the time to talk. I’ve enjoyed it. learned a lot and hope we can do it again soon.
Mark Childs 51:29
Thank you, Darrin, appreciate the opportunity and impressed with how you do and run your business.
Daniel Sayles 51:36
Thank you.
Daniel Helm 51:37
Thank you. Take care. Appreciate your time.
J Darrin Gross 51:40
All right. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CREPN Radio.
Intro 51:59
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