Justin welcomes Kevin Dollhopf and Gary Yates from Hickey & Associates. They discuss their labor report on the Inland Empire, which is a site selection model that analyzes the costs of real estate, labor, and transportation for companies trying to stay or locate a new facility in the area. The discussion covers the importance of labor to companies and the criteria used to evaluate labor force, unemployment rate, education level, and income. They also discuss how site selection can help balance supply chains in light of new risks such as climate and natural hazards, and how portfolio analytics can assist companies in making decisions about investing in solar power and other ESG initiatives.
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Highlights
- Kevin Dollhopf and Gary Yates’ background – 2:15
- Hickey & Associates specializes on site selection, labor analytics and incentives – 3:18
- How does labor have a big impact to users and companies? – 6:30
- The Inland Empire report is a site selection model that analyzes costs of real estate, labor, and transportation for companies looking to stay or locate in the area – 9:31
- Gary discusses the criteria for labor force, unemployment rate, education level, and income – 14:15
- They discuss headwinds and tailwinds, including the freeway network index, which measures the amount of traffic on the freeway miles per capita, and how it affects the market – 20:20
- Mexico has a great labor market with favorable costs and accessibility to western markets, making it attractive to both US and foreign companies looking to grow their supply chains – 23:00
- Kevin emphasizes the importance of how site selection can help balance supply chains in light of new risks such as climate and natural hazards – 27:40
- Portfolio analytics can help companies make decisions about where to invest in solar power and other ESG initiatives – 32:00
Episode Resources
Connect with Kevin Dollhopf
Connect with Gary Yates
Connect with Justin Smith
- https://smithcre.com/
- https://www.lee-associates.com/
- jbsmith@leeirvine.com
- https://www.linkedin.com/in/justinbsmith
Justin Smith: Hi everybody, it’s Justin Smith. Welcome to the Industrial Insights Podcast. Today we have Kevin Dollhopf and Gary Yates. They’re from Hickey and Associate. We go over a labor report that they put together on the Inland Empire. Labor has become the hottest issue for companies locating their manufacturing and distribution facilities and finding great people for their operation. So I hope you enjoy this deep dive into the labor scene and look forward to talking with you. Thank you.
Justin Smith: I found that report of yours that I referenced as I was doing research. I’m writing a book and my first book was on industrial tenant rep. So what do users and occupiers need to know when they’re setting up facilities? And then, the second one that I’m working on now, that was the 2021. So this is on the side, landlord leasing and what do landlords need to do and be aware of and how do they do a good job? And what are some of the pitfalls along the way. Labor’s getting bigger and bigger with every day. And so as I was doing a little homework, stumbled on this report. I was so happy that I did because there’s so much in there. So that was a fantastic work of yours.
Kevin Dollhopf: Yeah, interestingly that report has garnered a lot of attention because it really highlights and shows what we do. And labor is incredibly important in driving a lot of decisions these days. Companies are more and more interested in the labor side of it than the real estate, not real estate, hasn’t necessarily been marginalized, but they want to know if they’re going to be able to hire the people. That’s key.
Justin Smith: Yeah, it seems in southern California it’s tough all around. So I’ve heard people in LA gripe about labor and then people in the Inland Empire gripe about labor. I know I’ll go to someplace different for a better labor supply and then everybody still has a lot of griping to do. So it sure seems like in the greater SoCal world anyways. You can’t drive one direction because of traffic, or the trucks are all going the other direction or the cost of living and there’s components to it. So sure is fun seeing people, how they weigh it and how it fits into their overall decision making. yeah, I found this was fascinating, so I’m glad that it’s gone far and wide. I’m sure, you get a lot of phone calls that people that, are challenged with this and trying to factor it into their plans.
Kevin Dollhopf: Yes, absolutely. It’s getting a lot of traction, which is a lot of fun and I’m meeting a lot of people because of it. So it’s great. Yeah, so let me give you a little introduction first, and then I’ll let Gary introduce himself. But I’m Kevin Dolloff and I’m principal with Hickey Associate. I’ve only been with Hickey less than a year. Prior to that, I had a long and illustrious career managing global corporate real estate for Hanes Brands and Sara Lee. So I come into the consulting world from a, maybe a little bit of a different perspective, but I’m basically doing the same thing for a lot of different companies that I did with Hanes and having a lot of fun because it’s just meeting a lot of different companies and having a lot of different projects. Hey Gary, do you want to introduce yourself, so everyone knows who you are?
Justin Smith: Absolutely. I’m Gary Yates with Hickey Associates. I’ve been with Hickey for two years, so a little bit longer with than Kevin, but not much longer. but I’ve been doing location consulting and advisory work for 27 years now. So it’s been a long time. And most recently before Hickey I was with, JLL. I’ve helped a lot of clients around the US find locations and it’s great to be with Hickey now we have a global footprint, and we can look all over the world. And growing quite a bit. Sucking up talent out of the talent pool.
Kevin Dollhopf: There you go. You may or may not know, but Hickey is a global site selection firm. We really specialize in three major areas. One, site selection, helping companies figure out where to go, whether that be country, whether that be market within a country or a site within a market and how that all fits in with their network and logistics. Second big area is obviously labor analytics. And labor analytics is incredibly hot, and we specialize in using advanced analytics, but labor as the main driver, figuring that out. So advanced real estate, analytical capabilities within labor. And then the third area is incentives. With the recent legislation, there is just a lot of available money out there with markets competing, markets and states competing. And not only that, but now Europe competing with the US and a lot of global competition to get all the hot industries to locate there.
Justin Smith: So we’re global, 75 employees around the world we’re remote workers, right. And we don’t specialize in any one area. We specialize in basically our subject matter expertise. We have incentives expertise, we have network logistics expertise, we have labor expertise, et cetera. So it’s quite a mix of people and we’re working on a lot of different projects and its incredibly exciting period of time with all the nearshoring and geopolitical issues. And we’re connecting the dots with a lot of companies that are doing a lot of global work. We were over in Asia, a lot of Asian companies coming over to Mexico, coming over to the US, coming over to Canada to gain access to the western markets. Then a lot of western companies looking to diversify the supply chains and to figure out the whole situation with the trade wars. And it’s just an incredibly exciting period of time. And we’ve got new managing directors in Southeast Asia or Asia and Mexico, so incredibly active time. And are both of you are subject matter expertise is primarily the labor component.
Gary Yates: Yeah, so I would say that my background is in the labor aspect of it, so I can speak more to that labor specialty. All the projects I’ve worked on over the last 27 years have had some element of labor involved in them and both involving data and data resources that we bring to the table as well as Firsthand research that we’ve done in market, you know, all around the globe, talking with employers and understanding what the markets are like for that labor.
Justin Smith: Got it. How about you, Kevin?
Kevin Dollhopf: Yeah, my expertise would probably be considered on portfolio analytics, looking at entire portfolios and opportunities for cost savings within those. I’m not a labor expert. I’m not an incentives expert. However, I actually was a client to picky using those services, but running the corporate real estate, or major multinational global corporate companies, gave me a lot of experience on the inner workings of how companies actually make decisions rather than how people think they do it. So a lot of inside knowledge and gives me a little more competency in speaking to some of the people that we do work.
Justin Smith: And to go from being the person who’s asking for the services to the person who’s providing the services. And to have that perspective. I imagine that’s everything.
Justin Smith: Yeah, it’s a new humbling experience, that’s for sure. But the good news is I know how to talk to my counterparts. Not that my other colleagues don’t, but it’s a lot of fun. And exploring the different ways we can work with them. You’ve walked a mile in their shoes.
Kevin Dollhopf: There you go. Absolutely.
Justin Smith: Gary, perhaps you can tell us why is labor so hot? Why is that such a big topic these days and how is it such a big impact to users and companies?
Gary Yates: Well, labor’s always been a big issue, but it hasn’t been as highlighted. In past years, companies could find employees and depending on the submarket, they may have competition, they may not. But since the pandemic, there’s been a shortage of workforce. A lot of people left the workforce during the pandemic, whether they’ve retired or change industries altogether or just decided they’re not going to be in the workforce right now. There is a shortage of workers, and the economy has rebounded, post pandemic, or even during the pandemic, we saw it as well. There were certain areas where there are even greater shortages. And of course, the, with the growth of e-commerce during the pandemic, that really put a lot of pressure on warehouse and distribution. We have seen that across the board where it’s difficult to hire and retain those people. And so there’s, continuing wage growth, there’s continuing competition for that workforce. And there’s competition from other sectors trying to pull those people away. As the manufacturing sector grows, it’s going to pull people away from manufacturing and distribution. And we’re starting to see that effect because those manufacturing jobs typically pay more than what those people are going to make in the warehouse.
Justin Smith: Yeah, and do you feel like we’re back, nearing equilibrium when you think of the effects of the past two or three years or it’s just a new market now. It’s not going back to how it was and transforms.
Gary Yates: Yeah, I think it’s really a new market. It’s actually hard to compare before to now because there has been so much change. And as we look forward, we’re starting to see the numbers of the manufacturing sector growing in the US. I think we’re going to start seeing even greater levels of automation because as that workforce becomes more and more difficult to hire and retain. We’re going to see automation and warehouse, more automation and manufacturing. But what that’s going to do as well is shift some of the skill requirements in the workforce. So we’re going to see a significant shift in that skill requirement. It’s going to actually require a higher skilled person than many of the jobs that we’ve been talking about.
Justin Smith: As in like the engineers that can run all this automation.
Gary Yates: That’s right. Well, the engineers design and maintain it. We’ll have engineering techs that maybe they don’t have a bachelor’s degree, but they’ve got some kind of certification or a two year degree. But they’re much higher skilled than what we see right now in a warehouse or even in an assembly manufacturing location.
Justin Smith: Oh yeah. and when I think of this report here, so this was the Inland Empire report, that you guys had put together. And I think of, your experience, Kevin with Hanes Brand and locating here and figuring out like what size to facility, how many people, what product type and, where within Southern California. Was that something you participated in selecting and I think it’s a pretty sizable several hundred thousand feet at a minimum. What went into making the decision to locate where you did?
Kevin Dollhopf: Well, the facility I built with my former employee is 1.3 million out in Perris and 10, 12 years ago there was nothing out there. In fact, the Moreno Valley and Perris was considered to be a very outlying market, right? And there were only a couple million square feet of space there. And now it’s ballooned to, I don’t know how many bits, an incredible amount. And really the impetus for the study, Justin, was that we were working with NAIOP on session topics, and we’re labor experts, and the topic came up with labor and then they wanted to focus on the Inland Empire. And so I said as we met internally, my experience tells me that we need to approach this from a site selection standpoint. And everyone talks about markets, but they talk about them individually. The Inland Empire is great because of this. Here’s Dallas, here’s Phoenix, here’s whatever. But the site selector looks at it from, okay, that’s great, but how do the markets compare and contrast against each other? So it gives you a whole new way of looking at markets when you say,” the Inland Empire is great, it’s fantastic, got to be there, but…” And the buts come in where you’re looking at costs of real estate and getting labor and transportation costs. You know, what’s going on in the Inland Empire. And I had a facility that was at least expiring, and the rents were doubling and almost tripling. And so the question is, what are my alternatives? And so we’re getting more questions from clients saying, what are my alternatives. So we said, you know what? Let’s look at the Inland Empire from an entire holistic compare and contrast against all the other distribution markets and start looking at that. And we decide, you know what there’s a lot of tailwinds. A lot of great things about the Inland Empire. But there’s some things that are starting to creep in that are saying, you know what? We need to understand. What other alternatives there are because of the costs, et cetera. So that was the background is why we said, let’s do a site selection model for a company either trying to continue to stay in the Inland Empire or to locate a new facility in there. How would they look at it? What markets would they look at? What labor things would they look at? And how would they compare and contrast these markets?
Justin Smith: Yeah, I love the annual breakdown graph, right? So that’s employment costs, real estate costs, and transportation costs, right? And to put all those together. And any broker will tell you when you’re talking with tenants, how often you hear people talk about how challenging it is, and to try and make sense of this 2x or 3x overhead increase. And to really have to justify your footprint of what remains and where else you can adapt, or you can shift. And it’s a real challenge out there for users. And so I could imagine there’s a huge appetite for what are my alternatives and how do I make sense of them, and what would it really look like to move part of my operation to Phoenix, or to Vegas or to the Central Valley for that matter.
Kevin Dollhopf: Yeah. So we start looking at it from a total cost perspective. If you look at three major drivers of the cost, it’s transportation, its labor, and its real estate. And it’s always been reason to locate in the Inland Empire was minimization of transportation, right? Everyone needed to be there, port access, large population, great market, great livability, et cetera. But as the real estate market has ballooned and become quite expensive. It’s starting to marginalize transportation costs and the labor costs because of the pressure on the logistics has increased at a higher rate than logistics labor in other parts of the country. So if you’ve got two of the three components, ballooning transportation becomes less critical. And so that really starts to push you into other markets where labor is better priced and the real estate is more reasonable compared to what companies have historically seen, rather than the rates that you’re in the Inland Empire. The Inland Empire rates it’s almost you’re paying office rates for warehouse space, right?
Justin Smith: Yeah, and I feel like everybody in the Central Valley saw your report and was like, “see guys, I’ve been telling you, it’s finally our time to shine.” I could imagine if you don’t already have your Central Valley report, that’s next up on the docket. If I were your next employee that was working with you guys, I’m trying to assess where’s the interest.
Kevin Dollhopf: You either love the report or have an opposite opinion of the report, right? You either put it on their desk to show everyone or they hide it and put it in a drawer.
Gary Yates: No doubt there’s the usual, our market is better than your market, right? We all enjoy that, without a doubt. There’s so much to cover between, tailwinds and headwinds. Yeah, I think this one graph, that’s my favorite one. The heat graph, which puts everything side by side. And then you have all your columns that runs the different aspects. When people look at that, how do people interpret that? Or that’s for every company you can go on what are your hot buttons? Yeah, let me get started with the model because our model looks at so many different criteria and what we have in the report is the summary of each of the major categories that we look at, right? So we’re looking at labor supply, we’re looking at macro supply and skill supply within that labor supply component. We’re looking at education attainment, enrollment, and graduates. We’re looking at labor cost. We’re looking at the macro labor cost trends, what are the influences and what direction are those costs going? We’re looking at the actual wage rates as well, and how that’s going to impact the operation. So we lay out all of these components against each other. We’ve weighed and scored them. The table that’s here is the summary of those results and all of the scores here are relative to each other. You know, as we look at this, it’s not against the US average, it’s just comparing them to each other. And we’ve set up a stoplight format from a color standpoint. So green is best and the darker red you get, the lower the score that you have in that category. And then, from a company standpoint, as you’re looking at this, you can get a good feel for, are there people available? That’s one thing, but if they’re really expensive maybe they’re not the right people for us, or maybe that’s not the right place for us. You’ve got to start thinking of it with your own lens and how you balance out each one of those different components that you’re looking at there.
Kevin Dollhopf: Justin, there are an incredible number of tailwinds in the Inland Empire market. It’s a great logistics market. It scores tops in every real estate and labor category possible. In most under construction, most mega deals, lowest vacancy. and from a labor perspective, the highest number of workers. The numbers look fantastic. And whenever there’s a comparison of all the major distribution and logistics markets in the US Inland Empire is always within the top five, all the categories, right? So it’s a fantastic market. In fact, I call it the logistics empire instead of the Inland Empire because it truly is. And if everyone compares it against a lot of the other markets in the US, fortunately or unfortunately, it’s resulted in all the investors rushing in and all the companies rushing in and that’s had its macro impact on both labor and the economics of being in the region.
Justin Smith: I love how further on the tailwind section to start looking at different parts of the Inland Empire and then to compare them against one another, right. So it’s just further zooming in. Some of the criteria used for that, like additional filtering seemed very straightforward and one or two was a little bit surprising. So there was these six bullet points. If you’re looking on the right, Gary. Just as it further breaks down as you were zooming in, looking at the larger labor force, higher unemployment markets with more warehouse workers, higher concentration of warehouse workers in the labor force, higher percentage of workers with only a high school education, and then more lower income households. The two and six is what surprised me a little bit, higher unemployment, and more lower income households. I wasn’t quite sure the unemployment, I thought of like employment like availability of people. Is there some other like a nuance there?
Gary Yates: Yeah, that’s really what that’s describing from a macro lens. So the higher the unemployment rate, that means you got a larger pool of people who are not currently employed. Who will be seek seeking employment. So there is this pool of people that will be seeking employment and the higher the unemployment rate, the more people will be seeking job opportunities. And of course in a warehouse we’re talking about folks that are not a high skill workforce. So they may not be at the higher end of the pay scale.
Justin Smith: Got it. And I was a little surprised of like if you just sliced the IE north and south. If we have the north parts of it, kind of a riverside north perhaps, being the more attractive. And then, I could see like Chino being more expensive and then further south being less attractive perhaps. The part that stood out in my mind a little bit was with Victorville, I had an assignment that took me out there. And it was interesting to see people moving from the Inland Empire East going there and then talking about how that’s like the next frontier. And ordinarily I would not have too much experience there, but it was interesting to go there and see the new projects. And wonder is this too far or does this really help people serve the population centers? Or is it only the population centers going to Utah? Or what part can it serve? And when I look back to this target market, like a model summary, Victorville, had a couple stats in there that were a little binary. I couldn’t quite make sense of that. Is that anything that you could help describe a little bit better perhaps?
Gary Yates: Yes. So part of what’s happening in Victorville is it is very pioneering, but it’s currently not that large a workforce. So the scoring for it is what workforce is there looks but there’s not a whole lot of workforces there. So it gets scores that are either all the way at the low end at zero or all the way at the high end at a hundred because of that issue, because it’s just a smaller community at this point and it’s still in growth cycle.
Kevin Dollhopf: That’s what’s happening with some of the markets down. There’s smaller markets, the labor pools are not quite as large. So that starts skewing some of the results a bit in an indexing.
Justin Smith: For sure. I happened to go there during one of these super weather events where it was snowing and going through the pass. And then everybody’s freezing out there during the tour and we’re next to the federal penitentiary. It was a lot of interesting experiences out there where I was like, okay, I could see still some big boxes that are going up, but it was searching for the imagination.
Kevin Dollhopf: But you’ve seen this land speculation going on up towards that area. There’s a lot of it. Prices are rising. Prices are a little bit heady up there too on land. Much cheaper than the Inland Empire, but they’re not inexpensive.
Justin Smith: Yeah, to see the frontier be infill and now the next frontier, and then to make sense of that is surely what people in Phoenix and Dallas may be more used to of expanding out and more land development. That’ll be interesting to see how much takes over there.
Kevin Dollhopf: Yeah, so that section of the paper that you’re talking about is looking at just comparing the individual markets almost within the inland Empire circle. To see where in the Inland Empire the activities and scoring those areas against each. So we not only did, the comparative analysis of Inland Empire to other alternative markets, but also within the Inland Empire itself to see where the different characteristics index out on various Inland Empire markets.
Justin Smith: Yeah. And so that covers a large part of tailwinds. And for headwinds, we already went through some of the total cost breakdown. I love that in here you added the freeway network index. The way anybody that’s gone east to get the big box, hits five o’clock just like anyone else and then you recognize, how’s this going to get to the port and back? We’re going eight miles an hour. Can you help us understand a little bit of how that index came together and what goes into it?
Kevin Dollhopf: That was the result of some hard thinking internally. The congestion is significant, right? But how can we actually use data and use analytics to describe it? And again, compare it against other markets. So you look at the total freeway miles available and you look at the amount of traffic on those freeway miles per capita, and you can index the different markets against each other. And what it really shows when you put all the markets together, the markets that have great highway transportation and lower competition come out very high. But the markets that have the higher, the lesser freeway, Systems in place like Las Vegas or something, having much higher congestion. And the congestion in the Inland Empire has started to become quite cumbersome. And sometimes taking longer to get to and from the ports when you’re bringing a lot of containers in that way. So that was just a way of taking a look at how we measure congestion and how we do a comparison congestion against other markets. It makes you wish you had a fast track instead of a carpool lane, you just had a cargo lane. Absolutely. How about that?
Justin Smith: If it’s all right, we transition a little bit. I have two other topics maybe to explore a little bit. You guys had brought up manufacturing, nearshoring, French shoring, a couple of those concepts, if we could go into that a little bit. And then Mexico is a follow on to that. I’m not sure if both of you guys are the Mexico experts but even if anecdotally it seems Something that’s being explored by so many groups right now and a place where data is hard to come by as well. And that seems like an increasing challenge, that people are trying to crack that nut a little bit. So if we could maybe high level go into the manufacturing of Mexico, that’d be helpful.
Kevin Dollhopf: We just hire a new managing director down there, Justin. He used to be an executive with Pro Mexico, which was the big incentives for economic development arm of Mexico. Very well connected. But what we have found is we’ve been doing work in Mexico for a long time, but the increase in awareness and influence that Mexico has happening globally, it’s got a great labor market, right? The costs are quite favorable, compared to other western markets and a lot of Asian markets. The access to the US and western markets from an accessibility standpoint is incredible. And interestingly enough, it’s not just US companies. We’re doing portfolio analytics for US companies that are making sure they have Mexico covered the way it needs to be covered and looking for growth opportunities down there to continue to grow their supply chains. But we’re also doing a lot of work for foreign companies that are eyeing Mexico. We were over in Asia, not too long ago and made contact with several companies that are looking to grow in Mexico. And their big concern is obviously labor. They don’t understand it. Understanding the labor in Mexico is a bit difficult. We do a lot of ground truth interviewing of companies to really understand what’s going on in the marketplace, where companies are pulling their demographics from their labor, how much they’re paying and how their employees get to work. As you can imagine, we’ve got this magical triangle of Guadalajara, Mexico City and Monterey, where most of the companies are searching. We just completed a search for a company, an Asian company, who really had no idea how to look at labor. And we were able to through our analytics and through our data sources and through contacts we have with a lot of the analytics companies down in Mexico, figure out where the labor’s from and the quality of labor. And it was very well received. And it has created a lot of continuing interest. It’s a very active market.
Justin Smith: We’ve got a report that’s going to be coming out on Mexico, Mexico laborers specifically. And we’ve spent a lot of time putting that together. It’s very similar to the Inland Empire Report. That should be coming out in the next few weeks. Fantastic. That’s interesting to figure out what role that plays ingrowth here for 3PL and for manufacturing and for all these international companies.
Kevin Dollhopf: Canada’s very active too. A lot of European companies looking to Canada, looking to the US while also looking in Mexico. We purchased the largest site selection firm up in Canada. It’s now called Hickey Canada, based on Montreal. And they’re doing a lot of work and they work with a lot of companies cross border into the US and likewise us cross border up into Canada. But as I alluded to earlier, the geopolitical issues in the world and the supply chain issues have really made companies rethink their supply chain strategies. So they’re asking a lot of questions, and they’re asking a lot of those questions of us as they try to figure out, how to invest and where to invest? We’ve got a blog series called Where Next? Where we’re trying to help companies figure out these are the markets they should be looking at around the world. It’s quite interesting.
Justin Smith: Can you expand a little bit on how Canada fits into the picture for many different groups? Or like what some of the typical profiles would be or ways that people would look at it when you’re working on site selection.
Kevin Dollhopf: Yeah, so Canada’s very similar to the US, incredible growth in the automotive electric vehicle markets and supply and demand. A lot of the multinationals we work with have operations in Mexico, in the US and Canada for various reasons. Trying to access various parts of the market and playing off with the various free trade agreements. Of course, the North American, Mexico moves very large in all these decisions, but Canada’s getting a lot of interest from Europe. The French European connection, Canada’s always been much more European based than the US, so a lot of interest coming from European companies through expanding Canada.
Gary Yates: I think the next question we should be asking is, we’ve seen all these mega projects coming to the US, going to Canada, going to Mexico. What’s the future look like for the size of these manufacturing projects? And is it going to continue to be mega projects or are they going to start becoming more automated, doing more regional manufacturing and have a more distributed manufacturing model? There’s questions right now whether because of the shakeup in global logistics, if we’re just going to start doing a smaller, more regional manufacturing. We haven’t seen that yet. We’re still seeing mega projects, so I’m wondering if that may shift in the future.
Justin Smith: That’s a great segue. I love it. It’s an interesting question too, right? Because one would think it could be more distributed and there’s so many different product types and regional strengths and speed to market. I was having a conversation with folks about solar and the microgrid concept, just like having things more closely packed in together. So I could see with manufacturing all the more reason to try and manufacture in your region to the extent there’s a practical way to do so. It is interesting to think of what that could, would, and should look like.
Kevin Dollhopf: Yeah, we see Justin, again, the activity in all corporations is really a balancing issue, right? They’re not going to close facilities and open facilities and move facilities around. They’re going to balance. So we have a lot of east coast companies that are looking to balance with West coast by putting in West Coast operations and West coast, coming to the East coast and US going to Mexico and Mexico going to Canada. So it’s a matter of balancing, which is the brunt of a lot of the questions we’re being asked. And honestly, there’s new risks not just geopolitical, there’s climate risk as the tornado alley shift. Companies don’t want to be put in a position where they’re taken out of product. And so they want to make sure they have a resiliency and balance in their supply chain that allows them to stay in business. When you look at the dynamics between climate, natural hazards, labor, real estate costs, et cetera, it really becomes a very dynamic type of question you need to ask with a lot of different variables. Which is why, we’re so successful as a site selection company because we help companies kind of weed through all those and prioritize where they think. And the models we develop allows us to do sensitivity analysis so that they can see what happens at different variables shift in importance. And to the point we talked about earlier, you get these beautiful eye charts of red, green, yellow that makes you see the whole picture and makes you ask more questions about certain areas about what’s going on.
Justin Smith: Yeah, I always find executives that have been so successful and are so sophisticated, and have great teams around them, but it’s a lot to handle. It’s such a dynamic equation to solve for when you’re trying to solve for where to locate. It’s hard to have anyone be able to hold it all in their mind all at the same time to try and figure out and then prioritize what’s important.
Kevin Dollhopf: And everyone’s focused on mega projects. But boy there is so much activity on the companies, that are not mega projects. The 100,000, 200,000, 300,000 400,000 square footers and so much activity manufacturing going on in the US and in all these areas and solar’s quite active, food processing is quite active. There’s quite a bit of activity and new incentives legislation has us incredibly active in helping companies figure out and interpret the incentives legislation and what they would qualify for and how that impacts site selection decisions and how that should impact some of their investment decisions. And people are still trying to figure out the legislation. It just recently come up with the fine print of some of the legislator packages. So people are going through that with a fine tooth comb, trying to figure what money is out there and there’s a lot, there’s a lot of money out there now.
Justin Smith: What would you expect to see from it? I get that it’s all new. What would like a basket of incentives look like potentially. And what are your expectations for what’s going to come out of that?
Gary Yates: That’s a big question right there because the fine tuning of the programs haven’t fully been set yet. I don’t know that we have a good picture of how large some of those incentives are going to be, but I think they’re going to drive some major investment in manufacturing.
Justin Smith: And these are federal incentives?
Gary Yates: Correct. Because a lot of the state incentives have already been in place. The federal incentives are new and so that’s where we’re going to see some incredible investment in new manufacturing in the US. Where that’s going to land in the US or how big that’s going to be for individual projects, is yet to see what happens. But I think that’s going to be sizable. We’re going to see some good numbers with that. The other thing I’d like to say along those lines, if we think about all of these larger projects going on and how they impact community in an area and how they’re perceived. From a site selector standpoint, we see a mega project land in a community. We know that any other project we were going to look at for that community might have a hard time. Like that mega project’s going to take the available labor. It’s going to take the available land. And another critical part is the electricity. We’re at that point now in our nation and in our cycle of automation that everything that’s being built now is going to take more electric. And as we look around for projects, that’s going to be one of the limiting factors for a lot of these big manufacturing projects alongside the labor.
Kevin Dollhopf: You’re going to see a lot of investment in ESG. There’s a gap between the lofty goals of companies and their ESG programs and the execution of those goals. So that’s what companies have to figure out. A lot of the incentives will help that. We’re doing some work on portfolio analytics, helping companies figure out where in their portfolio does it make sense for solar power from a cost perspective, from an incentive perspective, from a utility perspective, right? Where is it best suited for that? and. ESG is becoming a very important site selection factor, but I’m not sure companies know how yet to execute that in their day-to-day decision making in the real estate site selection.
Justin Smith: Yeah, as they contextualize their decisions and how do you prioritize those initiatives into the greater decision making process?
And a lot of its data collection, right? They don’t have the data that’s necessary to really measure against. Most companies have 2030 or 2050 goals. But the execution and continuous measurement is a bit problematic. And then you’ve got whatever regulations will come out through the SEC guidelines on the scope one, two, and three emissions, and how you measure that and how you execute those in your actual decision making.
Justin Smith: Last follow up for you, Gary, electric. Could you expand upon that a little bit? I’ve been reading some of the Peter Zeihan’s stuff, where he goes into the electrical grid a little bit. And so it’d be interesting to think through what’s next there as that becomes a more critical component for companies. Between solar and wind and the electrical grid and factoring that into people’s decisions or their models.
Gary Yates: Well, there’s enough weakness in the grid, that’s a challenge in and of itself. But I was thinking more along the lines of a lot of new manufacturing operations are coming in asking for 150 megawatts of power. Well, no power company that I know of has that just sitting available, right? That’s new generation. It requires a new generation plant and then you start adding on the layer of the ESG. How are we going to generate 150 megawatts? We’re not going to build coal, probably don’t want to build gas either, and it’s going to take too long to build nuclear. Can we do the solar? Can we do the wind? Can we get enough out of that and be able to store? To be able to run these operations around the clock. So we’re going to have some challenges, on the generation side, as much as on the availability side.
Kevin Dollhopf: Yeah, it’s all about installed capacity, right? If the capacity’s not there, it’s taking three times longer, four times longer to actually get capacity installed working with the utility companies. The equipment’s not there. The permitting, it’s a big issue, right? And it’s even a bigger issue in Mexico, the energy requirements. And then you bring on companies that want to look at, what are the requirements or what are their options to renewable. As you were saying, solar, wind. Is there opportunity? In what parts of the country are those opportunities.
Justin Smith: And not just cost, but speed to market right, time is its own factor that was so important these past few years of being able to deliver.
Kevin Dollhopf: Everything is working against speed to market now. Speed to market has become so important, and yet all the supply chain issues, construction issues, availability of real estate, those are all working against speed to market. So companies are trying to figure that.
Justin Smith: Well you guys have been so gracious. Maybe, people listening to this need help., when do they call Kevin and when do they call Gary?
Kevin Dollhopf: Anytime.
Kevin Dollhopf: That’s right. They can call Kevin or Gary anytime. We do portfolio analytics. We’re helping companies figure out where to find cost savings in their portfolio. Corporate real estate folks, previously like myself used to have an easy job, negotiating leases down, cutting expenses. Those days are gone. So really companies need to be mining their portfolios for other opportunities, whether it be in power generation, power savings, incentives, CapEx for ESG. We’re helping companies figure that out because, the real estate world has changed from a corporate perspective. And real estate managers and companies are struggling. They’re trying to figure out how do they do their job and how do you anticipate and what do you do when your rents are going to double? The last 20 years have been a really a tenant market, and that dynamic has changed and it’s not going back anytime soon. So a lot of activity and we’re happy to field the questions from anybody. And to the point the Inland Empire studies gained a lot of, attraction. But that’s what we do as site selectors. We compare and contrast and help you make decisions based on alternative not just singularity looking at the issues. It’s a multitude of issues and how you put them all together.
Justin Smith: Well thank you guys. It’s been great to spend time and to explore a little further. And I feel like the need for what it is you both do, and your firm has never been greater with complexity and to really find meaning in it, and then to help people make decisions that will have a big impact on all sorts of folks. So it’s great to have you out there and I appreciate you guys spending time with me.
Justin Smith: I want to thank you for joining me on this episode. And if you liked what you heard, please drop me a note at jbsmith@leeirvine.com or text me (949)400-4786 and let me know if there’s any follow up you would like. If you have any guests or anyone, you’d like to hear interviewed or see on the show, let me know. I’m always looking for new exciting guests and look forward to connecting with you. Thank you.
