It’s the strongest asset class right now, but there are still a number of questions surrounding the industrial sector. What are some current investment and financing incentives? Where are the infill development opportunities in Chicagoland? How can a building’s design maximize performance and tenant satisfaction?
Looking to answer these and many other questions, REjournals assembled more than a dozen local CRE experts for the 17th Annual Transportation & Logistics Conference.
Deryl McKissack, PE, president and chief executive officer of McKissack & McKissack provided the keynote address. Her remarks revolved around the short-term effects of the pandemic on the industry, as well as the long-term ramifications of other factors.
“There’s going to be a new normal that we’re all going to have to find in the design and construction world,” McKissack said. “How do we service our clients? How do we move the supply chain forward? It’s going to take a lot of innovation and it is going to take us coming together and coming up with great solutions.”
She also addressed the lack of diverse voices within commercial real estate. Even though studies show that diversity produces higher performance, happier employees and boosts the bottom line, many companies have proven reluctant to make meaningful strides to address this issue.
“Today, 88 percent of construction workers and 84 percent of professional workers in the engineering and architectural profession are white,” McKissack said, citing similarly poor numbers for women in architecture and engineering. “We have a major labor shortage. So what is the problem? Why is it that we can’t train these people or give them an opportunity to be a part of our workforce?”
Todd Steffen, vice president, supply chain solutions at Colliers International, moderated the first discussion of the day. This state of the market panel focused on the national markets and Chicago submarkets that are seeing the most action, effective ways to raise capital and the industry’s response to the COVID-19 situation.
Putting Chicago into perspective from an investment standpoint, Rene Circ, senior managing director and chief operating officer at GID Industrial, touched on some of the troubles facing the market. While Chicago is not going to dry up, there is a reason that more capital is finding its way to Texas, Florida and other regions around the country.
“I’ve been defending Chicago for decades from people who said that you don’t have to invest here. But at the same time, as an investor you are buying the present income and the potential future growth,” said Circ. “That is the area where Chicago, compared to some of the other markets, has lacked.”
CenterPoint Properties, according to senior vice president Brian McKiernan, tries to be balanced in both the product types it works with and the submarkets they locate in. McKiernan said that his firm is still dedicated to spec projects with good fundamentals, saying also that they are prioritizing three submarkets: Joliet, O’Hare and Southeast Wisconsin.
Karen Lauerman, president and CEO at Lake County Indiana Economic Alliance, pointed out that there are approximately 150 projects now underway in Lake County, Indiana, suggesting that COVID had little impact on development in the area. “The difference between Illinois and Indiana is that Indiana has property tax certainty,” Lauerman said, highlighting Indiana’s constitutionally mandated 1, 2 and 3 percent tax rate caps for, respectively, residential, multifamily and commercial properties.
According to Caitlin Fitzpatrick Sullivan, vice president, leasing at Link Logistics Real Estate, there was—to no one’s surprise—a sharp drop in momentum in March and continued quiet throughout the second quarter of 2020.
“The customers we were talking to then were really focused on prioritizing flexibility and, understandably, slow playing decisions to see how some of this stuff played out,” said Fitzpatrick Sullivan. “But I would say that, despite everything that’s been going on, the industrial fundamentals have stayed strong.”
Jim Martell, chief executive officer at Logistics Property Company (LPC), somewhat agreed with that sentiment. A recently completed appraisal review for all of LPC’s assets showed modest compression, anywhere from 25 to 50 basis points compared to last December.
The second panel, moderated by Liston & Tsantilis partner, Peter Tsantilis, focused on construction, design, management and leasing trends. The panelists addressed how design and construction are changing to meet the needs of today’s users, as well as innovative leasing and management trends.
One industrial trend over the past few years is that amenities aren’t just for office and apartment buildings. “We’ve come a long way from the picnic table next to the truck court with an ashtray on it,” said Kevin Scott, vice president, investments and development at CRG.
Scott said that the fight for labor has meant that virtually every build-to-suit client that CRG has worked with lately has sought upgraded amenities. The rub, however, is that these improvement packages all cost money. One compromise is to install the infrastructure for future amenities, such as allocating land for a future employee patio.
The most prevalent aspect of new logistics warehouses, according to Dave Michael, project executive at Peak Construction is an abundance of trailer parking. He said that the developer may have to negotiate with certain municipalities who are uneasy with the volume of truck traffic going to and from these sites.
Michael Larsen, managing director, development at InSite Real Estate, echoed this sentiment. As InSite specializes in build-to-suit projects they have the luxury of not having to guess, for example, how many bays a future tenant may need. Traffic and logistics studies, however, are still necessary to assuage the municipality where a project is to be located.
“Our clients understand this, and they want to be good stewards with the community,” Larsen said. “We try to work with these communities to come up with a reasonable approach that meets our tenants’ requirements while at the same time being respectful of the community. These are long-term investments and these folks are going to be there for a while.”
Looking further afield, Eric Pitcher, regional manager, economic development at BNSF Railway Company said he doesn’t believe that future innovations in long-haul trucking will drastically impact warehouse design. Pitcher said that currently, trucks carry 65 to 70 of freight in the U.S. and rail carries another 15 percent, with air and barges taking care of the rest.
“We don’t think that’s going to change very much, whether you come in with a different fuel type—say electric rather than diesel—or if you come in with autonomous versus manually driven trucks,” Pitcher said. “The main reason for that is the scale that exists on the part of rail versus truck.”
According to Cameron Trefry, LEED AP, principal at Ware Malcomb, electric trucking will be more prevalent before autonomous vehicles due to safety concerns. But he highlighted advancements along similar lines inside the buildings, as more and more industrial users—whether in the manufacturing or distribution segment—are turning to robotics. These new uses come with one major demand: more power.
“Of course, you can generate power on your roof by having the solar arrays up there. Most of the time we see that going right back into the grid and not being consumed on site,” said Trefry. “However, it is a source of power that I think is untapped right now.”
The panelists touched on a number of other important topics. Did you miss this webinar? You can rewatch all past webinars on our YouTube channel. And be sure to check in on our events page for any future discussion.