I had an excellent experience this week attending NAIOP I.CON, the Industrial Conference that was held in Long Beach. I had a significant role co-leading the “Follow the Freight” Tour that took place around the Long Beach Harbor. But also moderated the kick-off panel with the biggest developers in the country. I gave it a humorous sports theme that made it a little different. Audio will be available shortly that I hope I will be able to post.
We are in the throes of an enormous rush to industrial from all quarters – developers, capital, and tenants. After so many years in the doldrums, I received a taste of what a boom could possibly look like. Luckily, I’m also in a position where I can find land and buildings, through my custom MAPP program, which are today’s essential ingredient. While all the activity has recently been on Big Industrial, land sites are running thin in many pockets. However, I see new development in more customary business park development as smaller tenants are now seeking space. Once we start developing smaller spaces, all cylinders will be firing once again.
On a personal level, I learned a lot about capital partners and how they drive the industry. Among the funds, REITS, Sovereigns, and other institutional investors, the focus is clearly on industrial real estate. All the long standing developers in the industry are as busy as ever before. There is also room for new platforms after such a lag for so many years. It is a certainty that you will see new, intelligent people starting acquisition firms that will receive rewards that come with first mover advantages. There have already been a few examples that are showing their value but the next step is when they explode on a national stage. For those new entrants, it will happen quickly because capital is looking for a vehicle and technology has created much better tools to expand rapidly. But let’s face it, low vacancies are the best propellant.
I did notice something else interesting. A lot of developers who have been inactive over this long recovery period are coming at the business the same way they did before. And that will not work going forward. Despite being relatively inactive for so many years, they already look top-heavy with the wrong type of management. Certainly, if you have a lot of money to plunk down and build in a good location, you’ll do great. But I would look for those developers that are just as well versed with new technology in order to locate and serve tenants. But more importantly, seek developers who can operate on a lean and distributive basis using partners and networks to keep costs down. Just as Vanguard pioneered low cost mutual funds, keep an eye open for developers who can operate on a low cost basis especially in this near zero interest rate environment. It’s the investors who deserve most of the benefits.
In addition there was a lot of excitement on ecommerce and last mile delivery. It is a growing part of the business that requires a better class of building which is a catalyst for new development. But just as vital is straightforward real estate investing where deals simply make sense. One fascinating thing I learned is the spreads between debt and returns is near an historical high – this despite some very nominal lows. With recent rent surges, “plain Jane” investments look even better.
If you search out NAIOP I.CON Long Beach, you will find very informative reporting. The sessions were all outstanding from the smartest people in the industry. I was particularly interested in the panel that discussed regulation. It showed me how competing developers can put their rivalries aside and work together to improve the industrial real estate industry. I was particularly interested to see the emphasis on improving lives by creating better paying jobs and an educated work force.
I met some terrifically intelligent people at I.CON that showed me how much there is to learn even after my 30 plus year career. Nothing like a real estate boom to bring out the best talent, of which I now feel I clearly belong.