Episode Transcript
[00:00:00] Speaker A: Foreign.
Thanks for tuning into the Real Estate Chicago Style podcast. I'm Joe Smazal. I'm a multi family broker and owner operator focused on the north side of the city.
Excited to have a couple guys with me that know everything there is to know about industrial real estate. Interviewed by a guy that knows very little about industrial real estate. So I hope that you guys just chat basically and I'll be here to maybe guide us a couple of times. I hope you do all the talking. So with me today, Barry Missner, CEO of the Missner Group and Larry Goldwasser, Executive VP of CBRE two authorities in the space.
And like I said, you're being interviewed by a dipshit apartment guy. So take the reins on this conversation and let you know. I hope that folks learn a little bit more about the industrial space. I'm sure that I will as as well and excited for you guys to join me today. So thanks for doing it.
[00:00:57] Speaker B: Thanks for having us.
[00:00:57] Speaker A: Yeah, good to be here. So we're in the stockyard, as I understand. Never been to the stockyard. And we're going to hear about that before we get into it. I'll give a little bit of background on you guys. Feel free to add whatever I miss and we'll do some rapid fire questions to get us rolling. Then we'll, we'll talk about this project and what you're doing in general. Okay.
So Barry leads the Misner group in the 80th year in the business. Is that still the case? Is this 80th year? Are we on the 81st?
[00:01:25] Speaker B: We're on the 81st year.
[00:01:26] Speaker A: Okay, right on 80. The website you're selling yourself.
[00:01:28] Speaker B: That's right. 80 years last, last October.
[00:01:31] Speaker A: Among the most active developers in industrial real estate in Chicago. They've completed over 750 projects, over $3 billion in consideration and have a current pipeline of $212 million in projects. We might have to update that stat too. It seems like you got a lot going on, but is that fairly real time?
[00:01:49] Speaker B: I think that's fairly real time.
[00:01:51] Speaker A: Okay. And mainly industrial right now. I understand there's been, you know, kind of different product types you guys have participated in over the years, but mainly industrial.
[00:01:59] Speaker B: Almost exclusively industrial at this point.
[00:02:01] Speaker A: Okay, cool.
Did I miss anything else about the bio?
[00:02:04] Speaker B: No, no.
I don't get credit for all of that. For all of that work over the years.
Third generation business.
A lot of that is the construction work that we've done. But yes, we've been around a long time and we were started actually not far from here at 34 shields across from the old Comiskey Park.
[00:02:22] Speaker A: Oh, dang. Right on. Still the Comiskey Park.
[00:02:24] Speaker C: Come on, we're still.
[00:02:26] Speaker B: Fair enough. Fair enough.
[00:02:28] Speaker A: Larry Goldwasser Executive VP, CBRE. 25 plus year career, which means you're old and a 25 career. 25 year career in brokerage is like 75 year career in something at least.
Head of hair actually looks pretty good
[00:02:43] Speaker B: for deal with me. He's had to deal with me a lot of those years.
[00:02:46] Speaker C: Almost. Almost all of those years.
[00:02:48] Speaker A: And so over 650 transactions under the belt, over $3 billion in consideration for those deals. Specialty of industrial land, redevelopment deals in Chicago, Western Cook, Northwest Indiana, o'. Hare.
How'd we do there? Anything I missed?
[00:03:04] Speaker C: I think you got it covered.
[00:03:05] Speaker A: Yeah, we're off on the right track. All right, we're rolling now. So rapid fire questions. First one's.
[00:03:10] Speaker B: I'm nervous.
[00:03:12] Speaker A: This one you can handle. Favorite pizza place in the city.
[00:03:14] Speaker B: Oh my gosh. Favorite pizza place in the city. I like the Pizza Amici on Grand Avenue where you can't get into it. But I was able to go once and it was incredible. So that's my new favorite place.
[00:03:27] Speaker C: Pizza Lobo in Logan Square is my favorite.
[00:03:30] Speaker A: Okay. I didn't recognize it by name at first.
[00:03:32] Speaker C: Great place.
[00:03:33] Speaker A: Okay, two good answers. I'm glad we didn't get like the lose peak wise. That's all played out so they're still good. What's the part of your daily routine that you think sets you up for success in your professional business?
[00:03:50] Speaker B: You want to take that one lare first.
[00:03:51] Speaker A: You're both taking it so I can cheat.
[00:03:53] Speaker C: I think just having a daily routine really, I get up early and I try to get all the most important things off my desk and off my email as early as I can. And I think having a routine and starting early and getting a lot of things out of the way before the day starts, then you can kind of,
[00:04:13] Speaker A: you can be a little bit more nimble through the day. If you get some of the like
[00:04:17] Speaker C: to do checklist, you could focus on what's coming at you instead of still trying to.
Yeah, yeah, definitely.
[00:04:24] Speaker B: I like to try and get out and work out or get out, get sunlight. I live near the lake now. I can just in the summertime if I'm not riding my bike on the lake, go out and just put my feet in the sand at Oak street beach and get some sunlight. So I want to get out and I want to exercise. So my best days are when I complete that.
[00:04:43] Speaker C: Your morning sounds wonderful. Way better than mine.
[00:04:44] Speaker A: That sounds pretty lovely, man. It's not bad. Feed the sand.
[00:04:49] Speaker C: Exactly.
[00:04:50] Speaker A: Who is an up and coming Chicago real estate person that you think deserves some recognition?
[00:04:55] Speaker C: You want to take that one?
[00:04:56] Speaker A: You're both taking it.
[00:04:57] Speaker B: Well, I'm going to be, I'm going to be self centered on this one and say that Max Kossoff who works at Misner, he came on a little over a year ago. He worked for the CA Ventures and its industrial group, Outrigger. And he is kind of running our pipeline side of our business. And in just over a year he transitioned from really being an analyst to being what I think is a rising star.
[00:05:23] Speaker A: That's awesome.
[00:05:24] Speaker C: Yeah, he's great.
Kind of using the same thing. I would say John Marks from my team who's been with us about seven years now.
So younger guy, really getting in the groove and just been doing a great job. He's gonna have a great, great future.
[00:05:41] Speaker A: I think one of the beauties of real estate is just being able. It's like very.
They call it a meritocracy or whatever. Like you can, you know, move up pretty quickly. You can really like affect change in the team you're working on. So it's fun to see those guys around you too. It energizes you both. I'm sure for business, when you see a guy or a gal on the come up in the business, it wants, you know, makes you want to do better too and provide enough opportunity for them to like not you're trying to.
[00:06:05] Speaker B: You're trying to keep up.
[00:06:06] Speaker A: Yeah, Seriously, it's energizing. So two good answers last.
Rapid fire for calling it that. But what's one thing that you're using AI for in your business that you think has been productive, more efficient, however you want to answer it.
[00:06:22] Speaker C: Yeah, we've been using it a little bit in marketing. We've started to use it a lot more with business development and trying to identify trends in the industry. So we know what to be looking out for and what to try to get ahead of.
We're still learning. It's. It's new to us.
[00:06:37] Speaker A: Yeah.
[00:06:38] Speaker C: But we, we've had some pretty good success with it. So.
[00:06:41] Speaker A: But I would think like corporately you guys have ton. I mean cbr, Matt, biggest real estate services company in the world. Right. Like, so I imagine there's a ton of resources being thrown at it. So there is probably at the cutting edge of.
[00:06:53] Speaker C: Yeah.
So CB as a whole is doing a lot with it. I was Talking more about when it, when it. What my team's been doing with it.
[00:06:59] Speaker A: Yeah, but we're learning the old guys will catch up when they, you know, that's what John's for.
[00:07:05] Speaker C: Every team meeting we have, we're trying to figure out how we can use AI. That's obviously the main topic of conversation these days with everything.
[00:07:13] Speaker A: How about you?
[00:07:13] Speaker B: Oh, we're using it in a bunch of ways so we're able to develop Excel models and save a bunch of time in creating those models. Oms we haven't gotten it to where we can create totally finished products, but it saves so much of the legwork that you're normally used to. You could take an environmental report that's this thick and get a synopsis versus just reading the summary page. So there's a number of applications. I don't think we've integrated it perfectly into our systems. But I talk to our people and say hey, in the mid-90s, if you said I don't do email, how would that have sound? And, and this is 10x the speed right now, so you better jump on.
[00:07:58] Speaker A: Be honest with me though, do you miss the days when the email wasn't as prevalent? We were like, you know, when I first started, like if you got a rent roll fax to the office, it was like gold, you know, then you were doing. But you know there's an old timer that like didn't have email.
Do you miss some of that though?
[00:08:13] Speaker B: I feel like I would get years of my life back in terms of the time I've spent on email. But, but it's a double edged sword because you're.
It improved our productivity. This is going to juice more productivity and in some ways I think maybe this extends people because a lot of, a lot of what we do that takes a lot of time to get done. Some of that time is going to get cut out. It's not going to change. We don't think the need to do this in our business to be in front of whoever you need to transact with. But the tools that you're able to utilize to get there are going to change a lot.
[00:08:47] Speaker C: It frees up a lot of time and even like lease abstracts and, and you know, just it's more reliable than people reading through leases and abstracting them from what we can.
[00:08:55] Speaker A: I put collateral you guys sent to me and I'm like, help me like explain this to me. Like it's like the Michael Scott from the office. Explain this to me like I'm a third grader, like how, you know, what does this stuff even mean?
[00:09:05] Speaker B: Exactly.
[00:09:06] Speaker A: So, all right, we didn't. We were very rapid with those questions anyway. But why don't we start? I was mentioning we're in the stockyards.
I'd never been to the stockyards. I thought I pretty much had been everywhere in the city.
And I pulled in and, you know, there's this like, old kind of monument, and I think it says 1865 or something. City of Chicago. There's a statue behind that. Like, there's this. I was kind of expecting to just like come into, like a sterile industrial park when you told me where we were meeting. And it doesn't feel like that at all. Like, there's a total, like different energy around, like the work that's happening here. So why don't you tell us a little bit about, like, this area and then, you know, this project specifically.
[00:09:45] Speaker B: Why don't you talk about the area better?
[00:09:47] Speaker C: Yeah, definitely. So, yeah, the stockyards, the union stockyards. Originally this was all, you know, hog farms, slaughterhouses. If you look at old aerial footage and aerial pictures of the neighborhood, I mean, it's unrecognizable. It was just an open air slaughter house, essentially.
[00:10:07] Speaker B: Yeah.
[00:10:09] Speaker C: And we're pretty much at the exact physical center of the city of Chicago.
The center of Chicago's at Pershing and Ashland. We're about five blocks away from that. So we're right in the middle of everything, which is why this became such kind of a high demand area for industrial redevelopment. We're 15 to 20 minutes from Fulton Market, from the Loop, and we're surrounded by white collar and blue collar labor.
So people started coming in and developing these industrial buildings years ago. We're probably on, what, our third, fourth generation.
[00:10:43] Speaker B: Right. It was probably turned into industrial park, I think, in the 19, late 1950s, maybe. I think the senior mayor Daley was the mayor. So you can only imagine the vintage of some of the earlier buildings I could tell are older and some of them have varying levels of functionality.
[00:10:59] Speaker C: And we're at the point where the older buildings are now getting knocked down again and becoming buildings like this.
[00:11:03] Speaker A: I mean, there's clearly like some infrastructure work happening as well. I mean, when I pulled in, there's like, you know, CDOT cruise or whatever. I don't know even if that's what it's called, but like doing curbs and sidewalks around.
[00:11:12] Speaker C: Yeah, they're doing new curbs and sidewalks. It's part of a special service area here.
So there's extra security. There's Security patrols that circulate around the park all day.
They clean up litter, they keep an eye on it, but they also do a lot of infrastructure work.
Job retention, job training.
[00:11:34] Speaker A: Is that what I was.
[00:11:35] Speaker C: So it's really. It's really a special area for industrial
[00:11:38] Speaker A: projects related to the. I was reading about the Enterprise Zone 2. Is that part of that or is that a different.
[00:11:44] Speaker C: The enterprise zone is separate. The special service area is specific to the Stackyards.
[00:11:50] Speaker A: Okay.
[00:11:51] Speaker C: The enterprise zone. I forget how many there are. There's several enterprise zones around the city.
Within the enterprise zones, you get tax savings for utilities, for construction materials.
[00:12:02] Speaker B: You're exempt from transfer from the city of Chicago. Transfer taxes.
[00:12:06] Speaker C: Yeah.
[00:12:06] Speaker A: So idea being to kind of catalyze some more development of this type of product in an area that they deem it to be appropriate or whatever.
[00:12:13] Speaker B: Yes.
[00:12:13] Speaker C: And for the tenants, too, their equipment and machinery, the taxes are exempt for that as well.
[00:12:18] Speaker A: So how, like, how lucrative or whatever is that for a tenant that's looking in an enterprise zone versus, like, one that's outside of it? Like, how does that. How does the. Maybe the math, like, flow to the tenant, or is it more at, like, the property level?
[00:12:30] Speaker B: We only know it at the property level, so we know. And it usually isn't enough to swing. I think it's much more impactful for the tenants. Depending on their use and the equipment that they're purchasing, they may be exempt from sales tax on the equipment that they're purchasing. So, for example, if a tenant moved into this space and was just erecting racks and doing distribution, maybe not allowed, but maybe to the tenant next door who's doing manufacturing. Yeah, there might be a greater impact
[00:12:55] Speaker C: if they're building out a bunch of office space. They have equipment coming in, things that, you know, if they have a high electricity, high power use, high gas use, there's a lot of savings.
I've never seen a tenant decide on a building because it was in an enterprise zone, but it's a nice benefit if they find.
[00:13:14] Speaker A: Right. So, I mean, this is. I don't know, maybe it's just how, like, naive I am about the product. But I walked in, I was like, oh, this is a. It's a lot bigger than. I understood that it was from outside. So, like, just talk to us about this building. Like, what, you know, what were some of the characteristics about it that. That make it more desirable for prospective tenants than some of the product that you referenced? Kind of obsolete. Like, how big is the building? All, you know?
[00:13:41] Speaker B: Well, just about everything. So Modern buildings are. It does not. Your Chicago market is probably 150 million square feet, probably 100 million on the south side, Chicago South, 50 million on the north side of that. Of that product. How much of it is a product new or five years new property? Larry could tell you, but it's a very small percentage of the overall stock. So what does that mean? Exterior docks high clear height, adequate power, which is higher than many of the older buildings have, you know, LED lighting, basically everything. This is a modern building.
This could easily go into the suburbs. This had to be built constrained by things in the city that. That constrain you that don't in the green fields out, you know, an hour from the city. But everything about this building is. Is modern by today's standards. And the stock is not in the city.
[00:14:36] Speaker C: Yeah, I mean, out of the hundred million square feet that he mentioned on the south side, there's probably 30 buildings of this vintage. You know, in the last.
[00:14:48] Speaker B: It's very little.
[00:14:49] Speaker C: In the last 10 years, we've maybe delivered on average two a year in the city.
[00:14:54] Speaker A: Constraints to being able to deliver more sites, costs, you know, I mean, handle off a bunch.
[00:15:00] Speaker B: Yes.
[00:15:00] Speaker A: So why did this one work? Answer it that way maybe.
[00:15:03] Speaker B: So what constrains land prices are high.
Soil qualities are not good.
[00:15:10] Speaker C: Finding the land.
[00:15:11] Speaker B: Finding the land. So you have to have a good broker like Larry to find land. Oftentimes for us, this was expansion land for the neighbor that he wanted to sell. During COVID I remember being on the phone thinking, what are we doing? We're at home working and we're talking about buying land in the stockyards. What are we going to do?
So you have bad soil conditions which require foundation support.
And remember, this isn't. We're not going vertically here. We're going horizontal. So foundation support is much more expensive going this way than it is going this way.
So you have that. You have environmental on virtually every site in the city, whether it's environment, what I call environmental light or environmental heavy. This was light. Ish.
You have requirements for.
You have to get incentives in Cook county. In the city of Chicago, you're required to essentially sign a development agreement that requires Chicago workforce minority contractors, women owned contractors.
We had a stormwater pipe that was 90ft down that required us to shallow out the building. And this is just an example of a city of Chicago development. You go to the next one and you're going to have a bunch of those issues and a bunch of new ones.
[00:16:17] Speaker C: And this is the first one that went through the Air quality ordinances.
[00:16:22] Speaker B: And the air quality ordinance.
[00:16:23] Speaker C: So traffic study, air quality study, neighborhood meetings, just to make sure that everything was in.
[00:16:31] Speaker B: And this is zoned by.
[00:16:32] Speaker A: Right.
[00:16:32] Speaker B: That you're in an industrial park and still you have to go through a process to be able to build the building.
[00:16:38] Speaker A: So you're not just slapping up a rectangle. Huh.
[00:16:41] Speaker B: You're just not designing and slapping up a rectangle.
[00:16:44] Speaker C: There's only five or six groups that will actually develop these buildings within the city.
[00:16:51] Speaker A: Okay.
[00:16:51] Speaker C: Because of all the reasons Barry just
[00:16:53] Speaker B: listed and the scale, the lack of scale. So. So the biggest building in the city is a client of Larry's Marina Crossings. How big is that building?
[00:17:01] Speaker C: 600.
[00:17:01] Speaker B: That was the biggest spec building buil in the city in 100 years when it was built. So you just can't. You can't find the land and make it work typically. And get approvals for a big building like that.
[00:17:12] Speaker A: Such a mature, developed city. And y. The air quality one was an interesting one. We were just chatting a minute before we started. Like, I understand that was kind of like something. An example of maybe regulatory stuff being painted with a broad brush is my. Because I was like, you know what. What are we so concerned about there? I understand that there's residential neighborhoods around this, but, like, you know, I. I don't live too far from, like, the Kennedy, you know, and then Bucktown is on the other side, Lincoln park, and, like, there's a bunch of trucks driving down the Kennedy. So why is the air quality test for, like, some trucks driving in and out? Which, by the way, I hardly saw anyone. I was pulling in, but.
[00:17:51] Speaker C: Right.
[00:17:53] Speaker A: What is the disconnect on that? What am I not seeing or what got missed about the. Is that too much?
[00:17:59] Speaker B: I think. I think it was. I think it was a reaction to. To an event that occurred in the city and silos or whatever when that. When Target was built. And I think it was well intended.
[00:18:09] Speaker A: Yeah. But.
[00:18:09] Speaker B: But all in our minds, all it ends up doing is just layering more cost onto the project, which makes the project cost more. Which raises the rent.
[00:18:17] Speaker A: Yeah.
[00:18:18] Speaker B: Which increases the cost of whatever the user is.
[00:18:22] Speaker C: Is.
[00:18:22] Speaker B: Is selling to their customers.
[00:18:23] Speaker A: Yeah.
[00:18:25] Speaker C: And I do think it was well intended. I agree. But I think there's just. There's a perception issue, and people think when these buildings go up, there's just gonna be a lot more truck traffic.
[00:18:34] Speaker B: Yeah.
[00:18:34] Speaker C: But either way, the product has to come to the city. So whether this building's in the city or this building's in Bolingbrook, there's trucks coming to the end customer which are the restaurants, hotels, office buildings, residents. The product needs to come in. So it's either coming from here or it's coming from Bolingbrook. But you're still going to have trucks around. It's.
[00:18:54] Speaker B: And this is much closer to the final mile. So these buildings tend to want to be smaller anyway.
[00:18:58] Speaker A: Yeah, I've heard that last. But you know, so like one thing that you mentioned in your previous answer was about when you were at home during COVID and like how you know, you were thinking about industrial building. What I thought during that time was man, we're getting a lot of stuff delivered. So like I, I think at that time and probably the average person, you know, not even in real estate, probably had a better appreciation or understanding of like the role in industrial real estate because it's like, you know, you can order anything in the from Amazon as an example. That's probably the most common one and it shows up at your door like later that day or that. So like I understood that there had to be these buildings, but what are some of like the uses or applications of industrial real estate that are deeper than that very like surface level understanding of the space.
[00:19:40] Speaker C: I mean the main uses we see now is obviously E Commerce, cold storage, any kind of food distribution, a lot of food processing, these prepared meal type companies that are packaging goods, sending them out to vending machines, to grocery stores, whatever.
Advanced manufacturing. We're starting to see a lot more of the real high tech manufacturing which is a lot of jobs and a lot of lot of infrastructure, a lot of investment.
[00:20:10] Speaker A: Yeah.
[00:20:12] Speaker C: Then we're always seeing third party logistics companies so warehousers that are storing and distributing product for another company.
[00:20:19] Speaker A: Yeah.
[00:20:20] Speaker B: Or specialty 3pls. I always say to people, our capital partners ask us, you know, what's the kind of the sweet spot tenant. And I say everything because it's not a cross stock million square footer on i80 where it's a different pool of tenants. It's really everything. And you know, in this building we have a range from someone who's doing maintenance on billboards to someone who's doing food manufacturing. You would think that those. How are those companies end up in the same building? It's just because the demands are kind
[00:20:53] Speaker C: of wide for they all need to be near the labor and near their customers.
It always comes back to the same thing over here.
[00:20:59] Speaker A: So when you're. I know you said like everything about this building is different but like what are some of the. The key like I was reading about the clear height and the size of the overhead doors and stuff like that. So obviously a building that was built 70 years ago in this area kind of started to become like an industrial hub are different than today. So what are some of like the specific things about what you're building today in this project or in others that are like differentiators?
[00:21:25] Speaker B: Well, I can just give you one anecdotal answer. We own the building across Exchange street, which is just to the north of this building. Probably 2006, 2007, we bought it. And to get to the truck dock, you literally had to back down an alley off of Exchange. I mean, you had to be a really good trucker to even get this thing into the dock. There was no parking, so they just were built to different standards. So that that creates a lot of functionality problems. And a lot of tenants can just say, I can't, I can't deal with that. Whereas here you have a modern truck court, you know, where the truck can swing get in and out of the docks. It's all new equipment. The buildings are docked greater, which is something that's needed. There's more power in the building, which is something that's needed. So I mean, Larry could tell you more, but it's everything.
[00:22:12] Speaker C: It's everything you'll see when you're leaving.
Most of these buildings are right up against the road and you'll see the roll up doors where the docks are. The trucks have to back in from the street, so they're blocking traffic, they're annoying the neighbors. Everyone's honking here. They pull into the truck court, they're off the street, they back right up to the docks.
Column spacing, we're 50 by 52 foot wide columns. These older buildings are 40ft, 35ft on some of them.
So you just have more floor area to work with.
[00:22:45] Speaker B: And if you're racking, it's going to be more efficient. You're going to get more product in. You're going to get more product in because of the vertical. The sprinkler systems are modern, so you can stack almost just below the bar joists.
Most of these buildings have old sprinkler systems or no sprinkler systems, which is a problem depending on what you're storing.
[00:23:05] Speaker C: Yeah, but this ceiling's 12ft higher than most of the other ceilings around the stockyards.
[00:23:12] Speaker A: Yeah, I came in, I was like, man, we should bring our golf clubs after this.
[00:23:16] Speaker B: And just to give you a sense is this is low by modern standards because of where we are in the city and the way that probably the inventory turns faster. If you get out into the green fields, it's 36 to 40 foot clear. These are 32, so you're talking another 4 to 10ft higher.
[00:23:34] Speaker A: So here's a dumb question which won't be. It's not my first and won't be the last of this conversation, but why are these exclusive? I mean, I understand we've got whatever this is, 50ft ceilings or something like that, but why are they not more like vertical or even like subterranean in some kit? Why are these all just like single story? Like there's one that I can think of that I've seen that's right off of the Kennedy. That's the one that has like the ramps and stuff. And. Okay, I understand some of it. Like you can't, you know, you're constrained on the size of the property. You can't build these ramps for semi trucks very often. But, like, wouldn't that allow for some more efficiency of the land use in some of these places?
[00:24:10] Speaker B: It would, but it's money. It's money. It's just the rents aren't high enough. The land as high as the land values are in Chicago, they're not nearly high enough to justify a proliferation of that kind of development. So when you see those, they Prologis did one in Seattle.
I think there's 11 of them. There's been a few done in New York.
Much higher land prices. And it's more common, I think, in Asia, where it's much more constrained.
[00:24:37] Speaker C: And they have smaller trucks there, right?
[00:24:39] Speaker B: They have smaller trucks. And there's, you know, when you. There's no scale in going vertical. It costs more. You have more structural steel. It's just a much more expensive proposition.
[00:24:48] Speaker C: It costs more, but you're not getting more rent. Yeah, the tenant just see it as a warehouse. They don't care.
[00:24:54] Speaker A: They would look at it as an inefficiency for their truck drivers and stuff.
[00:24:57] Speaker C: Some, yeah. And it's hard. It's hard to divide them because people get concerned with the congestion on the ramps.
[00:25:02] Speaker A: And so let's talk a little bit like in the apartment business, there's a lot of like kind of nimbyism, you know, people who are, you know, not in my backyard. And I think that that's turned a little bit maybe lately in the understanding of people.
There needs to be more supply to create more housing affordability. How is the public perception or like, political reception of projects like this in the city? I mean, one thing that stuck out to me before you answer is like, I looked at your deck and between 80 and 100 jobs or so per project are being created when you're developing one of these. So there's something to be said about that. There's something the public being able to understand that these are required in the ecosystem of an urban city like Chicago. But it varies.
[00:25:51] Speaker B: It varies. Listen, industrial development's under assault. I mean, anyone who's doing it right now would say that the NIMBYism is very high.
It depends where. I mean, there's.
It's not going to be great in a location like this. We're in an industrial park.
Most of the PMDs in Chicago plan manufacturing districts. It's not going to be. But there are communities outside of Chicago what we would consider infill locations that are just, they're redlined for us. They're just not going to allow industrial or they're not going to provide you the incentive in Cook county, which doesn't allow you to develop.
[00:26:26] Speaker A: What are the perceptions, what are the most common, like, misconceptions about a project that you wish you could, like, debunk, you know, in one shot?
[00:26:36] Speaker C: Noise, truck traffic and pollution?
You know, we work with a lot of the groups who are opposed to these and try to educate them on what these buildings look like and what actually happens in them. And typically they're surprised when they come in here and see how low impact they are, the same way you were surprised when you walked in. Granted, this unit's vacant, but even when you go in the operating units, there aren't a lot of trucks sitting there.
[00:27:01] Speaker B: This is only about 15% of the building. You saw where all the traffic is. The cars of the employees that are working in the building, not the trucks that are coming in and out.
[00:27:11] Speaker C: The perception seems to be that these are the same as the old smokestack manufacturing buildings. And they're not.
[00:27:17] Speaker A: Yeah, they're not at all.
And it, I mean, it's also just like outrageously convenient to get here. I got here from Lincoln park in like 20 minutes, you know, and there was zero traffic coming. You know, even like you go within five miles, like, there was no traffic.
[00:27:32] Speaker C: A lot of the employees in this
[00:27:33] Speaker B: park walk to work.
[00:27:35] Speaker C: Yeah, when you're here during a shift change, they're walking home. I mean, this is a 15 minute walk. And if this wasn't here, they might be taking a bus down to Joliet every day.
[00:27:44] Speaker B: Yeah, we think that this is like an A plus market within Chicago. I mean, it's a short Drive time to downtown. You're within an industrial park.
[00:27:52] Speaker C: So one thing to note too is every industrial building, at least in Chicago was built on a site that required some sort of environmental cleanup like Barry mentioned.
So if they don't get redeveloped, these sites that they're dirty.
[00:28:06] Speaker B: Yeah, that's.
[00:28:07] Speaker C: So that's a major. It's a big expense and a big part of the project. But they're really cleaning up the communities while they're going vertical.
[00:28:16] Speaker A: What are some other areas of the city? I mean the stockyards we've talked about. And it seems like it's kind of having. I don't know if it's fair to call it like a little bit of a renaissance or a next chapter in this area. Right. And it's an A plus. Like what are other areas that are either already like an A plus sub market for industrial or you think are starved for more but are difficult to develop in?
[00:28:37] Speaker B: Well, we're trying to develop in high barrier markets. So all of the mature markets are really where we're trying to play. Which makes the land acquisition very difficult because there's not a lot available.
So o' Hare would be one of them. Very difficult to get land in o'. Hare.
Oftentimes you're ripping something down or you're assembling multiple sites. We're involved in a project right now. It's a three site assemblage. It's got partial landfill that was on it. You know, so environmental, all of the, you know, all of the complexity. So o' hare I55 going down to. Towards Joliet. That was when I got into this business. That was a greenfield market. It is an infill market now. Land. Getting land down there is difficult if you want to be anywhere near 55.
So that's like the top regional distribution market, you know, kind of in Chicago.
[00:29:30] Speaker C: We're seeing a lot more in northwest Indiana now too. That's. Yeah.
And there's kind of different.
[00:29:36] Speaker B: That would be the more on the market that is probably going to start to mature faster, I think, or already has.
[00:29:42] Speaker C: It's maturing.
You know, if you go right across the border, we're seeing the same tenants that you see here. Yeah, they want to. They need to service the city, but don't necessarily need to be in the
[00:29:53] Speaker A: city and like waiting or what are
[00:29:55] Speaker C: some examples of the Hammond East Chicago. We just did a project with Barry there.
[00:30:00] Speaker B: So that drive time from East Chicago is 30 minutes. So if you're stuck at O' Hare with a truck coming in I office three days a week at O'. Hare. That is not 30 minutes coming into the city, maybe at 3 o' clock in the morning.
So that drive time is shorter. And you're also seeing a proliferation of development in northwest Indiana along 65, where you would head south to Indy. Yeah.
[00:30:22] Speaker A: And I imagine this is a pro Chicago podcast, as I mentioned before we started. I don't have to worry about with you guys, champions of the city, but I would imagine that there's maybe a little bit more like tailwind in those markets. I don't know if there's more economic incentive or is that not the case? Is that incorrect?
[00:30:40] Speaker C: There is, there's some more tax incentives, probably a little bit cheaper to build a building. The land is less expensive, but there's a lot of barriers to entry there too. Finding the land. There is really definitely finding the land.
[00:30:52] Speaker B: There's a lot of land that doesn't have utilities, so there's a lot of infrastructure costs.
[00:30:56] Speaker C: A lot of wetlands.
[00:30:57] Speaker B: Yeah, a lot. You know, people think you can go to northwest Indiana and just pick off land sites because you look at an aerial and then you realize that can't be developed or that's going to cost you 10 million to put utilities in. So there's not nearly as much supply. And I think what we're seeing, the maturing of it is there used to be people that wanted to dip their toes over there and say, yeah, I'll go over to northwest Indiana and see and then end up back here. I think you're seeing more people end up landing there now.
[00:31:21] Speaker C: There's actually data there now. Yeah, there's signed leases, there's sold buildings, there's developed sites.
[00:31:28] Speaker B: Larry's being modest. He leased a spec 250,000 square foot building for us there.
[00:31:34] Speaker A: 250,000 square feet is like a lifetime of square footage for a broker in the multi family space. It's a lot of real estate.
Are data centers in your purview or is this a, is that, is that something that we should like talk about with you? Like, so are those, are those kind of a subsector of industrial or is that.
[00:31:52] Speaker B: We call them industrial adjacent. So we don't build, we wouldn't build them. But we've been involved in some powered land, land portions. I think that the data center development business is a completely separate ecosystem. That is these campuses are billions of dollars, so that's not something we play in. But we have zoned land and tried to sell to the hyperscalers. And that's mostly in Northwest Indiana. That game in Illinois is more expensive and more difficult.
Yeah. Given the power companies and what they expect.
[00:32:27] Speaker A: So they can do it in northwest Indiana and IT services Chicagoland still. I mean, I don't even know how they work.
[00:32:33] Speaker C: I'm far from an expert.
I know that they're taking some of the pushback away from the industrial projects.
[00:32:40] Speaker B: So I think it's power availability there at the capacity that exists. I think that that's what the hyperscalers and the co location developers are chasing. And now if we talk about NIMBYism, that's worse than industrial. It shouldn't be. But the du jour NIMBYism right now is anti data center.
[00:32:59] Speaker C: And they don't have the same BIPA laws in Indiana that they have in Illinois.
[00:33:03] Speaker A: What does that mean?
[00:33:04] Speaker B: You can't really do AI learning data centers in Illinois because of. I forgot the name of the legislation.
[00:33:12] Speaker C: It's. Yeah, don't quote me on this at all. But it's a biometric.
It's like HIPAA but for biometrics.
[00:33:19] Speaker B: Oh, and so some uses won't comply in Illinois. That would. Would be allowed in Indiana.
[00:33:26] Speaker C: Yeah.
[00:33:26] Speaker B: And there's some utility relief in Indiana that doesn't exist in Illinois.
[00:33:30] Speaker A: So you guys know a lot more about it than me and I. But like, it's very interesting that there's that level of opposition to them when they're. When you're talking about like $5 billion project. And like that's just things like there's a lot of projects that are a lot bigger than that. Like that level of investment, the level of job creation, the level of tax revenue, like all the ancillary benefits of that. And what I didn't know, and I was talking to a buddy of mine that knows a lot about that space, is like, I always thought it was like a utility thing, like, you know, water usage or something like that. But as I understand, like once you get the water in, it's all like recycled. So it's not even like a constant drag on it. It's just about setting it up on the front end. But if you were Talking about a $5 billion investment, massive project, and especially the investments.
[00:34:14] Speaker B: Right now there's two projects in northwest Indiana, one in New Carlisle, one in Hobart. The total investment is somewhere around $27 billion. Just two projects and probably somewhere around 40 buildings.
[00:34:26] Speaker A: Geez.
[00:34:26] Speaker C: So what's the community benefit of that then? I mean.
[00:34:30] Speaker B: Well, in the case of Hobart, they're getting over $100 million of fees as part of the approvals and supposedly over a billion dollars over 35 years in terms of money to a town of 20,000 people.
[00:34:42] Speaker A: Yeah, that's what I mean. You think about the effect that that can have on the school system and infrastructure and everything else. It's like, even if you don't love it, okay, Even if there is some like, credibility to some of the pushback, which I don't know how much there should be, it's a wild level of economic development. You can do a lot of goodwill and a lot of like infrastructure of the city with that type of investment.
[00:35:02] Speaker B: What people don't know about scares them, I think.
[00:35:04] Speaker A: Yeah, I think so too.
[00:35:06] Speaker C: And it's new. I mean, it's in the very early stages and you know, effects haven't really been seen yet.
[00:35:13] Speaker A: What, like what?
You know, we can answer it any way you want. Whether it's like something that the tenants you think should look at, what about the industrial space, you think. I'm not asking you that. We should talk about, you know, whether it's from an investment development standpoint, whether it's a tenant use standpoint, whether it's like, I just appreciate that. I don't know all the questions to ask you guys. Are any, like, is there a topic, topic that we should cover that I haven't touched on?
[00:35:43] Speaker B: There probably are.
We could do entire segments on them probably.
[00:35:47] Speaker A: Let's do this and let's kind of pivot. You guys have worked together a ton over the years.
How did the relationship start? How does it work? Like, you know, talk about just. There's a lot of people that watch this that are either brokers or principals. Developers, like just talk about a successful relationship with a broker and a client and vice versa.
[00:36:04] Speaker B: Well, I can say from my perspective,
[00:36:05] Speaker A: what does he do so well? That was the guy that you thought of to have on with you?
[00:36:09] Speaker B: Well, he's a hard worker, like, you know, and he's, he's a good broker. But more importantly, like Larry and Barry's paths cross based on where we were making investments and where Larry was territorially cutting his teeth in real estate. And, and I always appreciated guys that work the city like Larry. That's, that's tough. You're not leaving the keys in a key box in a 40 year old building and having the, the proposed tenant just walk through the space like you might be able to do in a million square footer. Because they're all kind of a cookie cutter. Not, not that they're easy, but they're very similar in spec. Where Larry, I remember in the days would have to walk me through a building and explain how we were going to untap the value.
Because you really had to be creative because you were taking. These were mostly value add investments where you were taking older buildings and trying to polish them and create value.
[00:37:02] Speaker A: Yeah, yeah.
[00:37:04] Speaker C: I mean, there really wasn't even demand for these newer buildings back then, which is part of the reason nobody made this building market. I know. Definitely didn't make the market.
[00:37:15] Speaker B: It was an overnight success 20 years later.
[00:37:17] Speaker C: Yeah, exactly. We, I mean, Covid really helped to make the market here for sure. I mean, you know, in the last 10 years, the lease rates are up about 175% for new construction like this in the last decade.
[00:37:35] Speaker B: And that's the reason why you couldn't do them, because the rents just couldn't underwrite new construction because the efficiencies on the sites still existed. So you still had the environmental, you still had to build a new building. And it's just the gap between where the rent needed to be and where the rents were. There were times where it wouldn't even been on the radar of most developers.
[00:37:57] Speaker A: Does that lead to a lot of attrition of like a tenant base that was in these buildings prior that just can't pay the freight these days? I mean, is there. Does it create kind of like this?
I don't know.
[00:38:09] Speaker B: Why don't you tell them what's happened between kind of the new buildings and the second gen buildings and what's happened to those rents?
[00:38:14] Speaker C: Yeah, the second gen buildings. So the, you know, 1970s vintage buildings, a lot of those tenants are up for renewals now and their lease rates have doubled and tripled in the last seven years or so. So when they're renewing, they're going from a $5 net lease to a $12 net lease with double the taxes and stuff too.
So it's pushing a lot of those tenants to the newer buildings because the Delta isn't as large between the older ones and the newer ones. So it's actually creating more activity in the newer buildings.
And also it shows what a sticky market the city is. The tenants who are here really typically need to be here and they just kind of figure out how to make
[00:39:00] Speaker B: the increase and understand that that rent growth has happened at various levels in all the markets. So if you go out to o', Hare, I don't know what the percentages are relative to the Chicago south market, but in all of these infill markets, rents have exploded. So we just sold the building in DuPage, in Addison. So that's a kind of a main and main market because it's outside of Cook county, so close to o', Hare, and that, you know, those rents we were. Of course, when you're a developer, you're at top of the market when you're, when you're going out of the ground. And I think Those rents grew 65% between when we put a shovel on the ground and the last tenant that leased. And remember, these buildings only take a year to build. It's not like a high rise where you have three years of rent growth. That can build momentum.
[00:39:44] Speaker A: Dang. Well, it helps the economics of the deal.
[00:39:47] Speaker B: It does, it does. Especially when cap rates move against you when interest rates went up.
[00:39:53] Speaker C: The good thing with the city, though, it's so hard to find sites and get buildings out of the ground. Like we said before, there's only one or two of these delivering every year. So it keeps the supply pretty tight
[00:40:03] Speaker A: and you have a captive audience.
So, yeah, I imagine it helps you manage the risk of developing these speculatively if you know that if you're confident enough of what the tenant demand that Larry's going to bring is, you know, you don't have to build it to suit. I always figured that these were like, build to suit a certain type of use, but it seems like the opposite. Seems like you build them very versatilely. And then there's a huge pool of prospective tenants.
[00:40:25] Speaker C: Most of them are on spec. I think only 30% of the buildings built over the last decade were build to suits. And that's because of time.
[00:40:32] Speaker A: What does build to suit look like?
What characteristics are they generally having it? Is it just the scale of the building or the location? Or is it more about like the characteristics? Characteristics of buildings they would need certain.
[00:40:43] Speaker B: What you're seeing right now is because spec development kind of fell off a cliff, you know, two years ago.
[00:40:49] Speaker A: Yeah.
[00:40:50] Speaker B: I just read CB's report that 58% of new construction in industrial, which is about 15 million square feet in the entire Chicago market, is build a suits. And why is that? Probably because there's not as many spec buildings available. Build a suit is like we're working on a big one in Lake County. It's like building a custom home. It's a lot more work because this is commoditized. And then the custom home goes inside the space where you're, you're.
And some of the uses are very commoditized and some of them are very specialty. A build a suit is specialty. The client wants it exactly how they want it. They want the docks here, not there. They want their offices this way, not that way. And so there's a much greater amount of pre con work before the shovel goes in the ground.
[00:41:33] Speaker A: Are they generally buying it upon completion or are you carrying a long term lease when you do those?
[00:41:38] Speaker B: It always depends. It just totally depends on the one we're working on right now. The client will own it, but oftentimes they're signing a lease and you're building the building to the spec that you've agreed to.
[00:41:49] Speaker A: Yeah. So you got to make sure it's versatile enough if you have to backfill.
[00:41:53] Speaker C: Exactly.
That's the tough part. With build to suits, there's a lot of back and forth.
[00:41:57] Speaker B: Right. In the example I just gave you, we would not build it speculatively. We wouldn't want to own it empty because it's very unique sized for the tenant and it's not, it's not sized for the market to go release it as a spec building.
[00:42:10] Speaker A: Yeah, we're going to, we're going to do a little walking and talking. I'm going to ask you each one kind of like individual question. Like it's not as much in the weeds about the industrial space.
You know, Barry, you've got a 81, you know, your business been around for 81 years. I believe you're the third generation and steward of the family business that, you know, it carries a lot of weight. Like how do you think about balancing like staying true to the business roots and the great reputation with like, you know, the ambition that comes with being a guy like you that has a lot of it and you know, wants to advance it during your time in the business too.
[00:42:49] Speaker B: Damn, that's a deep question.
[00:42:50] Speaker A: It is. You can answer it superficially or you can, you know, I think, but I think real estate's great and that it can recreate kind of this legacy family business. And a lot of people I, I really respect and much smaller scale like you know, have a small family business that I, you know, we kind of put our name on and it means more.
So I think it's cool that you can have this like, you know, that you're working on some things that are still like true to what you're, you know, what your grandfather started back in the day and then also like be an entrepreneur.
[00:43:23] Speaker B: Yeah, that's a deep question.
Obviously we could cut it. I know. No, I was, I was, you know, I obviously my grandfather wasn't in the business when I started. He retired in the late 1970s, and I grew up in this business. Kind of learn it on your own.
My father was not really kind of a mentor, so to say is how we would look at it today.
So I kind of was a slow bloomer. I look at kind of the guys in their mid-30s right now, and I think, gosh, these guys are all five times smarter than I was at that age.
So it was kind of a slow roll.
But I do think about the Legacy. And I'm 58 years old, so, you know, I don't have the same energy that I did years ago, But I
[00:44:15] Speaker A: don't know you that well, but it seems like you got a motor on you.
[00:44:18] Speaker C: Yeah, he doesn't stop moving a whole lot.
[00:44:20] Speaker B: And I do love this business. Like, it's the puzzle for me.
These are all just big puzzles. So when you say, you know, Larry, you feel less risk building spec because maybe the market for leasing is better because it's constrained supply. And I could give you a Larry answer, which would be maybe because it could be 10 other things that could cause risk that. Okay, it's not this risk, but it's these other nine pieces of risk that we're trying to manage. So.
Yeah.
[00:44:52] Speaker A: Yeah, that's a good answer.
I've got another one for you that's not quite as deep, so don't worry. But, you know, you've been a broker for over 25 years. I appreciate the. You know, there's a lot that can be gratifying about being a broker that can be tiring about being a broker. You also have a team that you work with.
What do you think have been some.
I don't think the way to put it is secret sauce, because I think that it's. What are some of the values or, like, practices of your business that you think have given you, like, the longevity that you've had, the success during that time?
[00:45:23] Speaker C: I think credibility is one of them. We're just.
We. We never work in a great area. When I. When I say we, I mean my whole team. Yeah, we just. We do everything the right way. We like to make sure that we really understand what we're talking about. Yeah, we like to kind of be thought leaders with the type of work that we. That we do.
[00:45:45] Speaker A: Yeah.
[00:45:47] Speaker C: And, you know, I think just our work ethic. You know, we. We work hard, and we. We've seen a lot and we've done a lot. So at this point, we have a lot of relevant experience that we can apply to projects that I think people appreciate.
[00:46:00] Speaker A: It's a definitely all those things I would say are like commonalities of successful brokers that I know and like one of them that really sticks out and that's I think, very applicable for me and you here today is like having a niche and like going really deep into that niche and like really having a product type that you focus on, like even a size deal.
I think for brokers, like, when you look at your track record of what you do, there's a clear like, brand that you've established and if you take something on that's outside of that, you know you're not gonna do as good of a job and then it doesn't like, compound on your business the way that something that is fitting for your brand would be.
[00:46:35] Speaker C: Right, totally. Yeah, we stay in our lane with that for sure.
[00:46:38] Speaker A: It's a hard thing to do, though. It's a hard thing to do.
[00:46:41] Speaker C: It's hard, but you've gotta know what you don't know. You know, we have another project with Barry that's becoming a multifamily project and we brought in our multi family guy. It just, you know, number one, it's the best approach for the client. And number two, like, we don't have time to relearn a different or learn a different part of the business.
[00:47:00] Speaker B: We definitely, Larry and I have been doing it long enough to know what we don't know. And it takes some maturity in any business to admit that, you know, So I think that that's an important part. And those guys care. His team, they care about their clients. They care about you being successful. They don't want you to be vacant. They want to get at least because they, they are friends with their clients, they socialize with their clients. And you feel that when you work with them.
[00:47:26] Speaker A: Yeah, I, I appreciate all that.
[00:47:28] Speaker C: We definitely feel it when they're vacant. That part, that part we feel.
[00:47:31] Speaker A: I've been on the other end of that too. I understand that.
[00:47:34] Speaker B: What are you talking about?
[00:47:35] Speaker C: I don't know.
[00:47:36] Speaker A: The rap question then we're going to walk around is, why do you love Chicago as a place to live and work and invest and, you know, run your business?
[00:47:44] Speaker C: You know, I think first and foremost, I like the people.
I grew up in Detroit and been a midwesterner my whole life.
I just, I like the people here. It's very, just, you know, everyone's nice, kind of low key.
It's a gorgeous city, food's phenomenal, architecture is phenomenal.
[00:48:04] Speaker B: It's stealing all my thunder, all my ideas.
[00:48:06] Speaker C: It's beautiful. It really is.
[00:48:08] Speaker A: It started by saying that you, you know, you, you go to the lake, you put your toes in the sand. So that, I mean, I mean, that can be an answer too.
[00:48:14] Speaker B: City on, you know, we the people are great, Midwestern people are great to be around.
You know, when you live here, you complain about the winners and you complain about when we run into a roadblock on a development or something like that. But then you go away and you come back and you're like, I'm glad I live here. You get a sunny day. So I feel the same way. I'm a fifth generation Chicagoan.
My kids are a sixth generation, which is almost impossible to believe. And they're like, we're staying in Chicago. Like, you know, maybe I want to go to New York like out of college and stay there for three or four years, but all of them want to come back here and want to raise families here.
[00:48:52] Speaker C: It's easy to take for granted. But you grab a drink down by the river on a nice spring or summer day. I mean, it's one of the best cities in the world.
[00:49:01] Speaker B: Yeah, their offices are right there.
[00:49:02] Speaker A: I think you can also go, you know, just call it the shittiest weather day of the year and go to, you know, Gibson's or whatever and grab a cocktail and something to eat. It's like, that's pretty cool too, right?
[00:49:11] Speaker C: You forget you're right in middle of this all the time.
[00:49:14] Speaker A: I would think also for your business, like having such a diverse, like economic environment is great because we're talking about the versatility of these buildings and we're not just in Chicago. I think something we take for granted is not just being beholden to like one industry. You know, we have so many thriving
[00:49:32] Speaker B: and that's the kind of the everything tenant. We're just not, we don't have a concentration in an industry that would really drag us. If something, you know, you think of Houston or something like that. If you have. They had years where if there was an issue with energy, then their market was soft. If their energy was good, their market boomed. You just don't, you just don't have the same roller coaster ride.
[00:49:53] Speaker C: I mean, on any given day here, we'll be in a distribution warehouse. Let me go to the next building. And we're talking about, you know, robots delivering food and recharging in the buildings. Then you're seeing autonomous cars, then you're seeing, you know, a food manufacturer. It's like, it's so diverse.
It's, you know, they all ebb and flow. Like when One industry's slowing down, another one's picking up. And it. It keeps Chicago pretty steady because of that.
[00:50:20] Speaker A: Hell, yeah. You guys are great. You gonna show me around a little bit?
[00:50:22] Speaker B: Yeah, let's do it.
[00:50:23] Speaker C: Absolutely.
