Creating Value in Development with Jason Korengold

Podcast

Creating Value in Development with Jason Korengold

May 5, 2021

Creating Value in Development with Jason Korengold

Justin interviewed Jason Korengold, Senior Vice President of Acquisitions at Shea Properties. They spoke about the ever-evolving ecosystem of the industrial development marketplace.

 

Key Takeaways:

  • The power of early connections and networking in your initial career trajectory
  • We have a tight-knit community. We share, we connect and we introduce. We want to see each other succeed.
  • Developers and investors who are long-term holders look at acquisitions with more commitment and demonstrate that commitment in their capital stack.
  • Shea is fortunate to have three top-tier teams focusing on industrial, retail, and multifamily property types that allow them to develop infill sites with multiple different property types to match the community’s needs.
  • The existing industrial inventory from 1960-1980 is hugely lacking in smaller heigh clear industrial with dock-high loading. Shea’s recent nine-building project in Santa Ana catered to that need with buildings ranging from 25,000-166,000 SF that was met with significant demand.
  • Prologis recently bought a mall in Richmond, CA as another sign of logistics property, last mile, and micro fulfillment centers entrance onto the stage as e-commerce continues to adapt and evolve.

 

Here is a 2-minute clip from Industrial Insights Podcast with guest Jason Korengold.

 

 

 

Listen to the full episode below and subscribe to the podcast on Apple.

 

 

Highlights

  • Jason’s background – 0:48
  • Three great mentors to learn from – 2:22
  • The greatest commodity that brokers have – 6:21
  • What’s better for the tenant – 20:09
  • Regulations in California – 25:07
  • Marketing deals for Jason – 27:27
  • Developing industrial in southern California – 31:12
  • Wanting to educate the industry – 34:51
  • Logistics is an essential player in our world – 42:24
  • Progress is fundamental – 43:24

 

Episode Resources

 

 

Justin Smith: Thanks for joining us. I figure any good talk could be good to get to know some of Jason’s past experience. Maybe where you came from and some of the firms you worked with before where you’re at now. Some things you learned along the way, or that were good, experienced builders for you. I was thinking, I got a Makar, Turner and Connor right. Is three of the places that you’ve been, maybe it could highlight a little bit of what you experienced over there.

Jason Korengold: I graduated from USC in 2001.  It was an interesting time then, because we were just coming out of- actually 2002. So just coming out of the 9/11 tragedy and there was the .com bust. So, there was a little bit of turmoil in the market at the time. It was very fortunate at SC, one of the best things that you can receive in terms of your education are the contacts that you gained. Coming out of my school, I had a mentor when I graduated, and his name was Will Smith.  Will was at the time a vice president over at Makar Properties and he took me to lunch one day over at the Pacific club. He said, Hey, Jason, you want to be in real estate? Let me ask you, do you want to be on the owner operator side, or do you want to be on the brokerage side? I said, I’m too sensitive when I get rejected so I don’t think I’m going to be a very good broker. I want to be on the operator side.  He said, Hey, hold on one second, made a phone call to John Gamanila, who was the EVP over Makar at the time. Went in that afternoon and interviewed and got an analyst role over there, right out of college.  Started working for John and another gentleman named Dave McKinney, who’s also at Greenlaw, probably one of the smartest people I’ve ever met in real estate.  Right out of college, I got these three great mentors that I’m learning from.  Who are in the space with us today, as we all know.  Will and John, they started Greenlaw, and Dave went over there and what a great firm that is. So, I’ve worked in Makar Properties for about six and a half years, and it was on the acquisition side upfront. Then Will and John left for Greenlawn formed that. I was working with Dave and I caught a bug on the development side. The Makar Properties was more resort residential developer, had some commercial, but really a lifestyle developer. So, I jumped over to the development side several years in and was working with a gentleman, Mike Kanye who’s over there. He was a great developer and ran that side and I got my feet wet with entitlements, design and permitting. Politics obviously, and also just the capital markets and the financing side and what it takes to be a developer and so that’s six and a half years was wonderful.

Then the GFC happened, and we all remember what happened there. Thank goodness I was dating my now wife and not having a mortgage or kids to feed, because that was a scary time. Going full circle. So, after I left Makar there was a little bit of a gap and one of my really good buddies that I went to college with was Ken Turner.  He said, Hey, Jason, I got a company that I think you’d be great for. They just want to try you out because they’re going after this FBIC portfolio and I’d be great for you to come on for a couple months. The market would recover. It will be a great opportunity. It was what his dad, Rusty, Turner Real Estate. And went there on kind of just a consulting basis, but it was fine. I do whatever I can do at the time. After that he said, Hey, Jason did a great job. I’d love for you to come on board and be our acquisitions analysts.  Works over at Turner with great people. Rusty Turner, Sean Sheward who’s our executive VP and chief investment officer who is again, one of the smartest people in real estate that I’ve ever met. Then their vice president of acquisitions, a guy named Mike Kendall, who’s now the capital markets of West Coast lead for Colliers. I was there for about seven years and I call it my master’s degree in industrial.

Justin Smith: Awesome.

Jason Korengold: The people I got to work with. I guess the greatest career move that I’ve ever had was being afforded to work there because it was such great people. And Rusty’s probably one of the best industrial developers in Southern California history.

Justin Smith: He’s a legend.

Jason Korengold: He’s the best and one of the nicest people you’ll ever meet. It was an honor.  I got to learn there forever and met some great people, got to work with Ken and have to work with some other buddies. Mike McKenna, who’s now running asset management for Rexford. It was just a great overall experience. Learn how to development, learn how to work with brokers. I think that was the biggest tool that I, I received there. Rusty being a former broker and then turned developer.

Justin Smith: You try and reject them gently to having a soft side for them.

Jason Korengold: That I’m a very emotional and very sensitive. But, knowing that the brokers are our eyes and ears on the ground and real estate is an information service and greatest commodity that brokers have information. As a developer investor, you want to extract as much information and also provide as much information that we have. So, there’s this synergy between developers and brokers or investors and brokers. That we’re all on the same team. The number one thing Rusty said was, Hey, listen, the best thing you can do to a broker is tell them a quick yes, or a quick no. It’s all we can do, and you don’t want to sit on a project, and you don’t or sit on a call or sit on an email and wait to call them back a week, two weeks later, because you’re going to lose that and you’re going to lose their trust.

So, I have a rule and I learned it from him was a 48-hour rule. You can’t call someone back within 48 hours, that’s on you. You have enough time in the day to figure out how to get back to someone and that’s all you can do. Being able to analyze something quickly until you click yes or no, because as we know there’s a lot of equity and there’s a lot of people and there’s a lot of brokers and there’s a lot of developers, et cetera.

Justin Smith: 48 hours can be a long time sometimes.

Jason Korengold: I might have to push that up to 24 now.  All we can do and to provide brokers is to give you a quick response because you need to go onto the next person or the next group, because there’s a broker right behind you that’s doing the same thing.  Just making ourselves available too. So that was a great experience. He developed a fund of high net individuals. So, I got to understand how it’s a lot different than being with a reap. You’re talking about a small fund that gets put together with your buddies that are constantly calling you on the weekend saying, Hey, what’d you guys do? How’s that working?  It was great exposure to how that’s operated.

Justin Smith: I want in, on that. Come on, guys. You gotta get me in here.

Jason Korengold: It was great and then after my experience and my run with Turner I went over to Connor Commercial. That was a great experience working with John abroad, who again, former broker went on the development side, understands, and was great at putting deals together. Understanding how to put leasing together and you might be told no, but there’s another angle. So, let’s try another angle so that you’ll get the yes. It was wonderful working over there for about three years and understanding how development from a merchant perspective and capital is just such a fundamental component of what you do on the development side and having not only to source the deal, but also source the equity, source the debt and being exposed at such an immense level on that regard. I was then able to carry that over to my new position over here as senior VP for Shea and running our industrial division now and growing the industrial platform for the Shea family, which is awesome. That’s me in a nutshell.

Justin Smith: It’s a very fortunate experience. How wonderful, when you think of it, all going back to Will at SC and going out to lunch. That’s half the fun is some of those threads that tie it all together.

Jason Korengold: It’s very interesting. In that Orange County and really LA/Orange County, real estate development and real estate in general, especially in the industrial niche and such a small community. It’s a powerful community and being able to associate not only with the group that I’ve grown up and learn from, but the friends I’ve made along the way brokers, developers, bankers on the equity side, et cetera, they’re great guys. I go skiing with them or sometimes our kids know each other now. Hey, I’ve got a question you just entitled in the city of Fontana. Can you let me know what the pitfalls were? What should I do? How do I bob and weave, or who do I need to talk to you? Oh, here you go. Jason. It’s vice versa. Hey Jason, you developed over here in Rancho, what are some of the things that you learned and sharing that information and sharing that knowledge only makes us better, right because we’re a community and we want to see each other succeed. Not so much what we’re competing with each other, but afterwards you want to see them succeed. Nobody wants to see someone fail because as we go, our industry goes.

Justin Smith: It’s a great group of people.

Jason Korengold: It’s a great group. So very fortunate, I think in what we do and who we are associated with and, and just who we can be as a community. Doing not only just building buildings but being good stewards in real estate and neighbors because we’re all intertwined right now. We’ve had such a great ramp in growth in our industry of this last five, 10 years that we need to make sure that we’re doing it the right way so that it’s a lasting endeavor.

Justin Smith: You’re getting older and more experienced, and you have more responsibility.

Jason Korengold: More gray.

Justin Smith: And more gray along the way. Well, you’ve landed in a good spot. What are we doing now? What’s Shea all about and how is that different from kind of where you came from?

Jason Korengold: Well, Shea is a wonderful family office. They started back in 1881 as pores out of Portland and they grew that into a handmade construction company that’s built foundation of the golden gate bridge and relieve tunnels underneath the Hoover dam. They tunneled recently under LA for the red line and the MTA and it’s just this light. Elon Musk borrowed a drill bit so that he could do the tunnel underground, it’s crazy stuff. They grew into a home building company, as we all know, Shea Homes. Then from there grew into the, what I call the third leg of the stool, which is Shea Properties and that is our industrial group, our retail group and our multifamily group. It’s unique company with a unique platform in that I’ll run the industrial, but all the deals that we see in the market and we’re constantly digging for off market deals, constantly digging for deals where there’s some complexity to it, or there’s a mixed-use component to it. A lot of groups shy away from that sort of thing. Where Shea runs toward that and we can go and I can run across the hallway to our multifamily group or our retail group and say, Hey, there’s 20, 30 acres over here. I can’t do all industrial, but I can do industrial and maybe some single-family housing, maybe a little bit of this garden style multifamily. Then maybe we can put a little bit of a retail component.

Justin Smith: That’s huge.

Jason Korengold: It’s great because we have all this knowledge under one roof and this capability to develop multiple product types within one development on a singular basis or a mixed-use basis. Just leveraging that and cities are looking for more, more diversity in product type and development and so we offer that component and ability to develop multiple product types. The Shea family is very well healed. We commit our own capital to every deal. We have the ability to partner with other institutional money but it’s not in the sense that it’s the low equity numbers that some developers can do want to put in 25, 30% of that equity. So, it gives us more leverage with that investor, and it gives you a little bit more cloud, which is nice. It gives you a little bit more say.

Justin Smith: It demonstrates the commitment.

Jason Korengold: Absolutely. We’re long-term holders, so we don’t buy to flip. We buy sites so that we can build and develop very functional, long lasting business parks and buildings that we can cash flow for the next 20, 30 years.  That’s really what the family is committed to do. We’re really a value-oriented developer, who’s looking for long-term sustainability.

Justin Smith: SoCal, NorCal and Colorado, those are our-

Jason Korengold: Yeah, those are our primary markets. We’ve got a Denver office that’s doing very well. We’re looking all over California and a possibility of breaking into some new markets. Hopefully I can the secondary and tertiary levels that we’ll start exploring here shortly. You never want to be the last guy in though, so there’s got to be a lot of soul searching and inmarket market investigation, when you do that and want to make sure that it’s the right time and if it’s not, at least you’ve done enough data gathering where when it is the right time, you can jump in, eyes wide, open.

Justin Smith: It’s incredible how different each one is. There’s a lot of similarities, but when you drop into Dallas or Phoenix or Vegas or Seattle and you’re like, okay, there’s a completely different dynamic there. But it’s great to get smart to them and get experience in them and get deal flow in them and start looking at what could be and how confident you are or how well it meshes with the overall mission.

Jason Korengold: Exactly.

Justin Smith: That’s exciting. Are you done with leasing, the Santa Ana project? Is that still going or almost done?

Jason Korengold: Almost done. We’ve got one building left of our nine buildings and great activity and probably going to set the mark on loose rate with that project. It’s an interesting deal where you can develop great product, a small building product. We’re 25,000 building 166,000 square feet in that project in nine buildings. We’ve set the record in terms of market loose rates, every time we did the deal.

Justin Smith: The neighbors should be thanking you. It’s brought up the neighborhoods.

Jason Korengold: We’ve got a lot of high fives. Candidly, all that credit goes to Jon Marchiorlattiin our office.

Justin Smith: Jon is great.

Jason Korengold: I come on and he’d done a great job again, former broker really great steward of industrial real estate, knows the product and really was the driving force behind that project. He’s done a bang-up job on that deal.

Justin Smith: We have a project close by so we’re in the neighborhood on occasion and it’s great to see how well that turned out. It’s like a little beacon over there on that side to continue to make further progress.

Jason Korengold: It’s a good deal. I would say 10 plus years ago, you’d go, Ooh, you’re on the wrong side of the 55.

Justin Smith: That’s a big risk over there. You sure you want to do that?

Jason Korengold: Exactly. You’re not Irvine, but Irvine’s just a nine iron over the 55. But you sit there and go we need good functional new product because as you know that area in that airport market, it’s just old, it’s small. It’ll work for a group cause there’s nothing left but when you can provide, 28 plus foot clear, a couple of dock doors on a 25,000 square foot building.

Justin Smith: We need more of that over there.

Jason Korengold: Every tenant we had was we needed dock doors and small building. I kind of go back to my master’s degree with Rusty Turner who really started that kind of product type, whether it was in Pacific Commerce Center or out in the Inland Empire. Bringing it back here, that’s just been a tried-and-true product. The smaller individual building, great office layout, good looking project, because again, Shea’s a long-term holder. We’re not going to VE the design, but because we want something that looks good, and we just spend a little bit more money to get top quality product out there that’s functional. You might sacrifice a little bit of coverage, but in the long-term it’s going to be better for the tenant and it’s going to be better for the project.

Justin Smith: That one was an industrial prior. It seems like a we’re looking at anything these days, people are talking about golf courses. You hear about the malls and what are we going to do here with some of the ones that are languishing? All the covered land plays for buildings that are on large lots or built in the sixties. People going crazy on last mile and what’s last mile mean to me. It’s interesting to see. Are you in any of those kinds of less than a typical? I mean, it’s not just a vacant land. So, we’re in the infill market now. So, Infill means you look at all sorts of different product types and think through highest and best use. I feel like that also speaks to having the different disciplines over there. You can look at those different things where a mall may not be pure distribution and the neighbors won’t want that. But maybe between the three of you and your powers combined, you can figure out sites. So, what would you say are kind of sites you’re looking at just like the style of sites or the different ones that are kind of on your radar right now?

Jason Korengold: That’s a good question. I just read an article where Prologis was just closed on the Richmond mall, up in NorCal. Prologis doesn’t do multifamily. Prologis doesn’t do retail, but they know that they can get some logistics on there and keep the Walmart that’s existing there. Then redeveloped, maybe entitled some of the residential and retail. Then spin that up to developers and you get to keep what you want and that’s the name of our game on the infill moving forward. We bought the Santa Ana Project from ITT candidate and it was a manufacturing facility that they were moving that had environmental issues. The one thing that they liked about it was that Shea was going to come in and help clean up the site and ITT is going to have to keep some of the long-term liability on the groundwater stuff. But the fact that they only have to deal with one owner forever effectively, because we’re long-term holders, that means a big deal to them. Instead of maybe, having to do it to a developer that knows what they’re going to spend goes out to the investors or users or use it up and then sell it out as a stabilized project. So that’s what Shea can afford to some owners that are looking. In the infill you’re going to get some environmental issue. There’s going to be, it’s just buildings where there’s paint booths and oil drums that got spilled or something that happened.

Justin Smith: Standards are becoming stricter and stricter too.

Jason Korengold: We are reviewing a project right now that we’re trying to tie up in the infill area and they received an NFA back in 1997, the waterboard. The standards back in 1997, where here and the standards today are down here.  When you go and get a loan, your lender is going to sit there and say, Hey, yeah, I understand you’ve got an unfitted back then, but we need it to be updated because we understand those standards and we need to make sure that our liabilities count. You basically have to go back through the process. You tell owners that and they’re sitting there going, but I’ve got this piece of paper and you’re like, I understand and we’re empathetic towards it, but for us in order to make sure that we’re covered, we need to do this. So, there’s a bit of a hand holding process. But having that understanding of that process, gives that owner and seller some ease and understanding that, Hey, here’s what we’re going to do, here’s the process and here’s the insurance that we can provide you. Getting some PLL policies that’ll give them some comfort and ease knowing that, okay, at least we’re protected in some regard. But going back to your initial question on the infill, the infill used to be import and then it grew to the South Bay and then it grew to mid counties and then it grew to the North Orange County, West Orange County, South Orange County and now we’re talking about infill in Ontario, Chino, Rancho. Where we used to think-

Justin Smith: That’s infill now. It’s going to stop though. We can infill between here in Vegas, we got to draw the line somewhere.

Jason Korengold: I heard an interesting term the other day, that Vegas is the new Inland Empire East. It’s interesting in that regard because a lot of users are sitting there going, California is getting expensive. Regulations are tough. Labor is expensive. We’re getting hammered by regulators that are imposing new rules. They’re imposing new taxes and then go, well, I can take a building in Perris or Moreno Valley at a million square feet. You can get it probably around high fifties and 60 cents, or I can drive four and a half hours further up to 15 and do it for like 40 cents.  By the way, there’s no state income tax, cheaper labor and great infrastructure. So, you’re starting to hear more and more about some logistics firms expanding out into that market and then they’ll leave their headquarters or some of the more skilled stuff down here.

Justin Smith: You’d be crazy not to optimize for that and take a hard look. We just drove up to a Zion for spring break. So, I just did that 15 drive. So, I could only imagine a thousand of more trucks on that road. Making the haul but that’s what it is these days.

Then of deals you look at off market on market. I mean, I feel like we’re all off market ninjas these days. Just sort of behind the scenes trying to work stuff cause that’s just the low inventory and sometimes with infill, that’s a part of the game. How are you seeing it on your side?

Jason Korengold: I would say that the low-hanging fruit is gone. In terms of right down the middle slays, where you’re entitled, you got a nice square 10-acre parcel.

Justin Smith: Scoop it up.

Jason Korengold: Here you go. Let’s go and process something that’s going to be administratively approved. Then we can just go ahead and start doing the building. So, a lot of that stuff is done and if there is anything like that, it’s been because you had to assemble land and neighbors and all you’re going to be paying a very high price for that. In terms of marketing deals, I go back to Shea is a long-term value add developer. And so, we can’t compete with the publics. Can’t compete with the hot money funds. So marketed deals for me are more of a market Intel and information gathering process. I’m looking for sites that we can add value. I can’t pay market prices. I’m not going to pay, the new numbers in the Inland Empire West or $50 plus and if you’re entitled for 60 bucks plus. Who would’ve thought the Inland Empire West got to $60 a square foot in a matter of five to seven years? I remember when I was at Turner, I bought with Rusty a site at Haven and Forth, right off of the 10, vacant lot, 6 acres zoned industrial. We bought it for $10 a foot and we had to like just to scrape and claw and say, please let’s buy this 10 acres or $10 square foot site, at Main and Main in Rancho. That was 2013, 2014. That site today is $60.

Justin Smith: Not that long ago.

Jason Korengold: Not that long ago.  I say that because, cabaret compression with treasury is going down to where they are now, even though they’ve gone up a little bit, let’s be honest they’re rock bottom. Return criteria on a lot of the groups that we compete against has gotten a lot lower. So, we’re a little bit more of a conservative group and we’re looking for truth deals that our company can digest. Marketed deals that get bit up and then you can tell the groups that are great at doing that. We can’t compete with that cost’s capital. So, what we need to do is we need to find deals that are a little bit hairier. That take a little bit longer.

Justin Smith: That’s where your expertise can shine and that’s where your commitment can shine.

Jason Korengold: So that’s what we need to find. We’ll add that value to get it to where that market is, whether it’s on a rezone or environmental issues or whatever. So those are the types of deals that we go after because we can bring in such a unique experience and such a unique knowledge to that transaction. I’m looking for all off market. You mentioned off market is a relative term. Because is it off market and five guys going after it? I feel like that’s off market now. That’s the thing where a marketing deal is getting 15, 20 groups in there. So, it’s all relative.

Justin Smith: That’s a fun part of the game is figuring out how early you are into the inception of the idea of there could be a sale there.

Jason Korengold: Exactly.

Justin Smith: That’s creating the demand.  I love that part. That’s half the fun of the broker part is to figure out where we are at and is there a way, they haven’t thought of yet that you know of. Where you can create that opportunity, where there was value, you can unlock that. Maybe they hadn’t thought about it. They weren’t familiar with it, or they just didn’t know the moves or the play there.

Jason Korengold: Well, that’s the biggest thing, sometimes you want to be the second or third guy in there because you can bring that different perspective and look at it from a different angle. And I think when you’re going into developing industrial in Southern California, you need to have a different twist. You need to understand how you can benefit the seller at the same time benefiting you and at the same time benefiting the community.   Then understanding just, the diversity and the politics of it these days because things are changing at all times and moods are changing within the city. So, if you’re going to go after a site, that’s more complex, that’s going to require commitment from city council, getting to them early so that you can bring them on board and have this team effort moving forward. Because the last thing you want to do is hang the city out to dry and then just get beat up by their constituents cause that’s not good for anyone. That’s not good for you, it’s not good for the neighbors and it’s not good for the council members who then have a bullseye on my back. We need to bring that perspective as well.

Justin Smith: A lot of people don’t have the experience to understand all that. That’s where just like a typical like investor in buying existing product, you miss out on that whole experience. Then now we are getting a long here. There’s a NAIOP and this initiative and thinking about trucks. Is there a way we can get 10 minutes of- what I’ve found are there’s a surprising amount of people in our world that aren’t aware or don’t understand, or haven’t heard of what’s going on? So, I figured that seemed like a project that you were working on or are working on with NAIOP.  I don’t know if you have a couple of minutes to just kind of help understand what what’s going on, why and what we can do about it?

Jason Korengold: So, in May, the South Coast Air Quality Management District will be voting on rule 2305. Which is the indirect source rule and commonly known as ISR in our industry. This has been an initiative that down here has been working on it for over 10 years. And one that our industry has done well in delaying and pushing back on cause what it is effectively a tax on operators in buildings that are a hundred thousand square feet and above. Which is an arbitrary, delineation in terms of where they picked, because they’re sitting there saying, well our hypothesis is that trucks are bad, and buildings of that size have a lot of trucks going through them and we need to do something about the emissions going into the air in our communities. Especially in Southern California, where they are, and they have been at higher levels than other parts of the state because of the age, but, and also just the population density that we have down here.

Effectively, this rule has gained steam and it’s going to pass in May, and I think we’ve done a good job in terms of pushing back on it but unfortunately, this was one of those snowballs that gain too much speed.  So, one of the things that we’re trying to do is educate our industry because when the onus isn’t on the owner and it’s on the tenant and our industry, which is very owner developer heavy is trying to put the word out there for our tenants. SoCal NAIOP and IE NAIOP have joined forces and trying to push back or at least amend the rule. There’s a bunch of provisions in there because the way it’s written these groups, once it’s approved in Bay, 60 days later, this rule goes into effect and so you’re asking almost 700 million square feet in Southern California to abide by a rule that in 60 days that they had no idea what’s coming and that’s just not fair. We’re trying to push back to say, Hey, at least give us some education time going into this. It just rules back. The other component was there’s no sunset date on this rule and now that’s just an annual tax on users that was never going to end. They gave us some platitudes and said, okay, well, when we reach attainment of the carbon emissions in Southern California then we’ll stop the rule and it’s like, that’s never going to happen. We’re never going to hit the numbers that you need because you’re taxing trucks, but the biggest issue are cars and that’s not in this rule. So, you’re hitching our wagon to something that we don’t even control. The other issue we have is, they’re talking about this tax, it’s a dollar a square foot effectively a year.

Justin Smith: Yeah annual.

Jason Korengold: That’s up to $650 million a year. What are you going to do with that money? What’s it going to go towards? Especially when they’ve got a budget of like a $100 million a year, $50 million a year, and now you’re about to increase that thing sixfold and is that just a slush fund for you to continue to go attack the industry? Or are you going to repurpose that within the community so that we can deliver more energy efficient components to buildings and trucks. This is a truck deal; this isn’t a building deal. So that’s kind of the issue that we’re running into.

Justin Smith: If it were all going back into development into the trucks and improving those, then you’re like, okay, this is all going to be mutually beneficial. That’s the part that you want to see. Half the work we do is for the tenant side of all these users and tenants that are looking for space. You already have the rent increase. It’s already a huge one. It’s such a squeeze, right? They are having a tough time before this, and there’s a lot of people making hard decisions before this. I can only imagine, lopping that just another like challenge in figuring out how to remain and how to thrive in the Southern California marketplace.

Jason Korengold: When you’re being conditioned in these trucks, they’re going after fleets, but the majority of the users out there are mom and pop shops or a small user. That sit there and go, as you know, there’s on thin margins anyway and now to add an additional tax. By the way, this tax doesn’t come from the state, but from a regional regulator. It seems a little unethical and a little unlawful. It’s scary in that regard from just a business component where you’re sitting here going, I’ve got all these regulations and all these state and local taxes and now I got to worry about regional regulators taxing us. That’s a scary proposition in our state when the cost of doing business is so high already and especially when they want these truckers and these fleets to go out and buy electric trucks.

Justin Smith: I was going to ask you about these.

Jason Korengold: The technology that’s there ish. It hasn’t been approved by the regulators and also, it’s not commercially available. So now you’re going to tax all these users because they don’t have electric trucks. But those electric trucks aren’t even commercially available to them and they might not be commercially available for five plus years or so. It’s kind of concerning that they’re getting taxed on that. The biggest thing that they can do in order to get out of this or at least comply, they can’t even buy it right now.

Justin Smith: That’s not realistic.

Jason Korengold: It’s not realistic. There’s a lot of issues that we have with the rule. What we really need is to come to the table and knowing, California trucking association is very engaged. So, we’re working in conjunction with them, and it’s just getting the word out to our tenants and let them know, listen for 10 years, we’ve stalled this rule. Unfortunately, we can’t stall it anymore. Now we’re trying to work with them, but you guys need to come out and help us be vocal because of the environmental justice groups that are out there play on the hearts and strings and we totally understand. It’s a valid issue. Air quality is a valid issue. We all breathe the same air. We are all concerned that are our air is clean, but the biggest thing that I say is that a year ago, when the pandemic started, and we were all locked in our houses the air quality was the best that Southern California has seen in decades. The one thing I want everybody to understand is that trucks never stopped moving. Logistics never stopped during the pandemic at the beginning. While we enjoyed this clean air, the trucks kept going at the same rate pre pandemic. So, the emissions and the smog isn’t coming from the trucks because they’re to the standards of the 2010 truck rule that car passed, we’re at 99% efficiencies at least on the truck side. It’s the cars. Again, we come back to the cars and understanding that we’re getting taxed for something that we’re not the biggest contributor to. We need to understand that logistics is an essential player in our world and if anything, the pandemic brought that out at an exponential level.

Justin Smith: Oh man, it’s saved all of us. We’re all very thankful for that and have a more appreciation for it without a doubt.

Jason Korengold: Absolutely and when you’re leaving waters and snacks out for the UPS, FedEx and Amazon drivers, they appreciate it. Right. I think that they were a vital component during this pandemic to get us through this. A lot of the employees and labor that work in these facilities, especially in the Inland Empire are within that community. So, we’re taxing that community or at least this rule is taxing those workers. All they have to do is go outside of the South Coast Air Quality Management District parameters. Vegas, Phoenix, and Central Valley is going to benefit from this, and Southern California is going to lose jobs. Now what happens when we’re trying to cut this air emissions down to levels that trucks aren’t providing to our journey towards now, all these groups are in and employees are starting to lose their jobs. That’s what we’re afraid of.

Justin Smith: Well, when we start having electric trucks that are available, I know who I’m going to call and we’re going to go do a test drive together.

Jason Korengold: That would be fun.

Justin Smith: Be on the forefront of it. Then autonomous, right. That’ll be who knows when, but it’s pretty wild to imagine how does that change supply chain. Or that’s maybe more a cerebral what if, and someday, but it sure is interesting to think of that will change all of the pieces and the players and the values and how you value each market. So that’d be interesting to see that develop.

Jason Korengold: Progress is fundamental. We need to embrace true change.  As our industry changes, we went through a Renaissance in the last decade with logistics and e-commerce. We need to be good corporate stewards to the environment and the community. Building clean buildings, it’s going to cost more for our bottom line, that’s okay. Let’s just do it in a reasonable way where we’re not just getting slammed by a regulator, we’re working with them, we’re working with the community, we’re working with the government so that we can do it in a rational manner that gets rolled out so that not everybody gets knocked over and it’s more where the means just don’t justify. That’s what we’ve got to work towards and that’s what we got to do. It’s the word out there.

Justin Smith: It’s the method. It’s how. Well, Jason, I appreciate you taking the time. I think we covered it and for me, one of the takeaways was mixed use opportunities. I have come across these. I see them in the market and there’s few groups that can take that and make sense of it and then have that really be a great fit. So that’s something I think a for Grant to think about as we come across opportunities. That’s one, I think so many people in that are pure players, they can’t make sense of that. So that that’s a fun to open that up a bit.

Jason Korengold: That’s awesome.

Justin Smith: Cool. Well, thank you, Jason. Have a great one.

Jason Korengold: Have a great one. I appreciate it. Thanks for you guys’ time.