Justin and Jake talk about how Jake uses his experiences and skill set to help Duke develop new industrial properties throughout Los Angeles, Orange County, and the Inland Empire.

Key Takeaways:

• Do the right thing. Be fair. Be honest. Remember the Golden Rule. People gravitate towards others who they can rely on, who they want to be around, and who are hungry to do great work.
• Skill and experience progression is important in career development. Jake has been fortunate to learn institutional best practices within an entrepreneurial development firm, then learn all about capital and syndication within a family office, and transition into the larger ground-up development in the lead up to his current role with Duke Realty
• Duke’s Southern California office continues to grow and outperform working on some $250-$350 million of development in the region annually.
• Duke differentiates in that they have in-house development services for entitlement, site planning, and layouts, in addition to pre-construction that helps with pricing, and project management
• Year over year rent growth in industrial is going to increase as supply remains constrained and demand is unsatiated for Class A distribution space, which continues to drive land pricing.
• Industry veterans remember when $25 PSF for industrial land was expensive and we’re pushing $95 PSF in some markets.
• The increased competition leads to an increasing need to demonstrate your ability to close and fulfill the vision of the project. This is where Duke excels.
• Multi-market collaboration between developers, tenant customers, and brokers is increasing and leading to an advantage for those who can play in this space to create opportunities before they reach the market.
• Last-mile logistics is in its infancy with developers and tenants iterating on strategies and tactics for optimizing the supply chain.

 

Here is a 2-minute clip from Industrial Insights Podcast with guest Jake Smith.

Listen to the full episode below and subscribe to the podcast on Apple, Spotify, or where ever you get your podcasts.

 

Highlights

• Understanding the tenant’s needs – 4:47
• Industrial buildings – 12:29
• Learning different aspects of real estate – 14:27
• Making decisions on how you’re going to present your space – 15:51
• Investing in syndications – 17:14
• Treat people how you want to be treated – 21:16
• Having great success – 24:18
• Learning from others – 26:11
• Southern California as the best market to be in – 27:22
• Having qualified teams – 32:50
• Demonstrate the ability to perform – 34:31
• Getting a project approved – 39:17
• Data and facts – 43:21
• A multi-tenant scenario – 46:48

 

Episode Resources

• Connect with Jake Smith
• https://www.dukerealty.com/
• jake.smith@dukerealty.com
• https://www.linkedin.com/in/jake-s-2a368b7/
• Connect with Justin Smith
• https://smithcre.com/
• https://www.lee-associates.com/
• JBSmith@leeirvine.com
• https://www.linkedin.com/in/justinbsmith

 

Justin Smith 

Yeah. Well, cool. Jake, I know you’re a busy man. So I figured it was fun in advance. I did a little Duke history, which was fun, to get a little up to speed with where it all began. And I love seeing some of the black and white photos, some from the 70s and kicking off a new venture. And it was exciting to learn a little bit about that.

 

Jake Smith

Yeah, it’s a great organization that, you know, had it had a good foundation, or a very great, great foundation built on culture. And I think, you know, to this day, the offices that we have, and the people in those offices embody the type of mentality, work ethic, humbleness that makes do the company that it is.

 

Justin Smith 

Yeah. And from humble beginnings for you some of the places you’ve worked with beforehand. Right. So I was just thinking of, you probably learn different skills with the different groups along the way. So maybe you could give grant and I just a little bit of what maybe things you’d picked up when you look back at your time with BGP, or with Vendetti or DCT. And some of the things that kind of helped bring it all together for you.

 

Jake Smith

Yeah, absolutely. I would say that the experience and the opportunities I’ve had in the past have helped me round out the experience and the skill set that I have today, going from working unit small shops that have more of an entrepreneurial spirit to larger organizations that are, you know, publicly traded companies and being able to take bits and pieces and understand what’s important within each organization. You know, I’ve tried to, you know, pick up on because each organization has different drivers, whether it be from the public sector, private or even down to pay, to Two partners on 100% of the company and what’s important to them. Starting at PGP, it was a great experience because Gerald Westel, Bob Dewey, were part of pacifical properties was a public road. They had a multifamily and industrial division; they sold the industrial off to reef. That’s how Justin and I got to know one another, those business parks up in Lake Forest. And I had a great opportunity to, you know, cut my teeth, so to speak, on doing small multi-tenant industrial leasing. And what was nice is I had the opportunity to see what was important to the ultimate client brief. As well as how the local partners Deron Bob, what was important to them, and being able to, you know, get the reps in leasing, understand what’s important to tenants understand what’s important to the landlord side, and really trying to be able to, to understand the whole landscape in and that’s been able, it’s allowed me to, hopefully, you know, excel in my career and, and, you know, understand how the whole, you know, soup to nuts works. So, I started out on the leasing side. Then GR gave me the opportunity to look, you know, explore from the leasing to the more of like an analyst role to understand how the numbers work, the costs work, to site acquisition, and development to the project management side. And then overall, like development manager role. So it was an incredible experience to be able to understand almost like, kind of like in the CB world, like the wheel program, all different food groups, in this case, this was more on principle side, but getting to know, you know, understand how the leases work, understand the types of leases that can be in place, the document itself, the tenant improvements, that go into space, whether it be a white box, or something specific to attendance needs, understanding just enough, you know, tenant credit, and how that’s underwritten into a lease transaction. And then, at the end of the day, it’s the mom and pop shops that are, you know, the first step out of the garage, making their widgets and understanding what’s important to them. So it was, it was great that I was able to touch on all these different aspects of the overall, you know, transaction side of the business. And then understanding why our business parks valuable, what makes them valuable, and understanding that they’re really expensive to build locations critical. And really, you’ve essentially kept the supply, but the demand has continued to increase, which is driving rents driving values of the multi-tenant space. So that was, that was really cool. And, you know, I feel very, very lucky to have been able to be put in a spot where I could learn that, and then expanded that and really kind of build that foundation to understand how it translates from smaller multi-tenant to larger big-box space. And, you know, I think Justin can attest that

a 2,000 square foot lease in a 20,000 square foot lease take about the same amount of work. And in some cases, the larger you go, the more sophisticated tenants are, the easier the transaction ultimately becomes.

 

Justin Smith

Without a doubt.

 

Jake Smith

So yeah, that’s, I’ve had a great opportunity, or I had a great opportunity with them. As a market turn. This was kind of my first experience of how a market could turn quickly, back in 2008 and 9.

 

Justin Smith

That was your first one. Yeah, no, That was my first on.

 

Jake Smith

Yeah. Luckily, I would say Justin, I think you and I were in a spot where our monthly overhead wasn’t super high. We could weather the storm. A little bit better than had, we been farther in our career and had more responsibilities, more expensive monthly expenses. So I’m glad it happened at that point versus later Later in my career.

 

Grant

Jake, I’m in the same boat right now as well. I’m currently living at home with very little overhead.

 

Jake Smith

Hey, that’s good. That’s good. You know, someone once told me that, that the best when you want to hire somebody that wants to get in the business, you hire somebody that has a family and kids because that is nothing drives hunger. More than that. And you really have no failures, let’s say not an option. Yeah, it’s, uh, so 2008, I think truly has still, I mean, I don’t forget it. And when I’m looking at deals, yeah, it’s always kind of in the back of my mind, that market doesn’t go up, up, up, up up, you know, forever. So, I would say that that’s also something that’s stuck with me, you know, to the core is just real estate itself. It’s not always going up. So try to be risk-averse. I tend to be more risk-averse, I think then, than others just due to seeing how the market could flip on its head very, very quickly.

 

Justin Smith

Credit, debt, the ability to extend debt obligations, right, if all of that went away or was slow, or there was a shock there. Could that ripple through again? Yeah, it could ripple through without a doubt. It would have massive impacts.

 

Jake Smith

I do believe that. I think as an economy, we learn from our mistakes. And if you look at historical real estate cycles, it seems like it’s never the same thing that trips us up. It’s always something different. Yeah. There are different imbalances that that occur. So I would say that we do learn from our mistakes. But that doesn’t mean that there aren’t other potholes, so to speak, that we could potentially, you know, trip upon.

 

Justin Smith

learning opportunities

.

Jake Smith

Exactly, exactly. So the PGP partners was a great experience. As I said, I finished up a project we were building the Ontario airport towers; it was a six-story mid-level office space right out off arch wall and the 10. freeway on Ontario. Yeah. So I finished up the development managing role there. Finish up the project. And, you know, that’s it was 2009. I mean, everything was a screeching halt. So JR and Bob Dewey were incredibly nice that they said, Hey, we, I think kind of somewhat of the downside of work for a small shop is when market when the economy does turn, there’s not. There’s basically fold up the tent on top, so they’re nice, and they said, Hey, we can’t pay you, you can still come to the office if you want to. And that’s what I did. Yeah, for an entire year. I just I still went into the office, tried to, you know, do some brokerage. And really, just if anything was for my own sanity, or my mental health to be able to-

 

Justin Smith 

Yeah, keep your head in the game.

 

Jake Smith

Yeah, I mean, I tell JR, I see him every now and then. I mean, every time I’d see him, I just, I do, I thank them for allowing me to continue to go back into the office. So that was really nice of them to let me be able to still put on, you know, my work slacks and dress shirt and be like, you know, productive real estate

member of society.

 

Justin Smith

Yeah. And to just like keep being exposed to what’s going on there to understand how the market keeps evolving, right. All of that is hugely important during those times. Absolutely.

 

Jake Smith

I mean, that’s, that’s your guys’ businesses. You know, boots on the ground, understanding live time, what what’s happening, the trends that are happening that’s why you know, on our side on the principal side, that the brokerage community is so valuable to us because that’s your eyes and ears for The market. So yeah, that’s that way. It’s great to be able to, you know, continue to stay close to the market. And then, I did some consulting, which turned into a full-time job with the Vendetti group. And that was another that that was another learning experience. Because I got to see Donvan, you know, he’s, he was one of the verse developers, and in Cerritos, he used to be just dairy fields. And he was one of the first developers to, you know, start doing multi-tenant industrial buildings that are still there today. And working for his son, Bob, was different because there are different things that are important to them that partnerships on those business parks. And so cash flow is important to them versus, let’s say, on the reef side where valuation was important. So, yeah, where you could keep the base rate up high, give more free rent, versus the private guy that hey, wants, wants the cash flow coming in quicker? You know, less, less free rent, lower rate, get cash quicker. So kind of seen both sides? Yeah, nothing, you know, there’s no right answer—just a different investor.

 

Justin Smith 

Get different structures, and it gives you a new perspective on how to structure deals and another perspective on how to deal with tenants and yeah, capital stack, and I imagine, yeah, debt financing.

 

Jake Smith

Yeah. And so that was, that was a good learning experience. And I was able to bring some of the stuff I learned from the institutional side and incorporate it on to the kind of out calling them more of like a family office side of ownership. So you know, brought some institutional kind of ideas and mindset and, you know, a business plan that we’re able to incorporate, you know, the key was white boxing, multi-tenant space, more of an institutional type of feel, make sure every, you know, all the spaces kind of look the same. So helped with that. Helped with some financing, so understood more of the NIS, back then it was, like companies providing debt. So working through that, and, you know, finding the best deal and working with the mortgage brokers to secure debt. So that was another great kind of avenue that I didn’t have experience working on the institutional side because typically, that was more of a portfolio-level debt versus here, I’m talking property-level debt. So it’s really different. And that was, again, I feel like I’ve been very lucky to be putting spots that have been diverse and allowed me to learn different aspects of real estate that I continue to use and utilize, you know, to this day.

 

Justin Smith

I feel like the reef experience and with reporting and white boxing, and I feel like all of that is so valuable to everybody that hasn’t had any insight into institutions and leasing and reporting. And yeah, I imagine that was pretty, like a very impactful and helpful experience to bring to the table.

 

Jake Smith

Oh, it was, it was great. I mean, even looking at now, kind of being in the bigger box space and logistics and e-commerce, I still go back to some of those fundamentals. And so that’s, that’s been helpful because it truly you can see the impact when you make these decisions on how you’re going to present your space, how you’re going to build your buildings, and how they transition to leasing, and how quickly you can get a leased and the rates and, and again, the mark. I mean, it’s I’m not gonna say I take 100% credit for any of the success. I mean, the market has made people on my side of business look pretty smart. But it’s, we’re not smart. We’re just lucky. And I rather be lucky than smart in most cases. So I’ll take it. I’ll take it. Yeah. So then, yeah, so I worked with, you know, Vendetti. We actually syndicated a couple of industrial parks. So that was great to kind of learn that general partnership structure Limited Partnership structure promotes, you know all that the type of the structures that small, smaller individual ownerships tend to utilize when they’re buying properties, you know, at a scale where it’s the need to have more than just one

or two partners.

 

Justin Smith 

And syndication, most people wouldn’t have experienced it or wouldn’t know any better how all of that works. So I imagine that not only could you help you someday with someone who is syndicating, but also you are investing in syndications. Right? You’d have a different perspective looking at it.

 

Jake Smith

Yeah, absolutely. You know, understanding the, you definitely want to be on the GP side than the LP side. But either one’s not bad because that means you’re investing in real estate and allow your money to work for to work on itself. So yeah, I mean, so that was like another experience where I wouldn’t have gotten it on the institutional side to see how the mom and pops, investors are able to own real estate. So that was, that was a very good experience. I wouldn’t trade for anything. And then, I mean, I guess it’s been nice because that a transaction that I worked with at Vendetti led me to DCT, selling a business park to Panattoni and working with Bud Barris. And then, but called me up six months later and said, Hey, I, you know, I want you to come work for me, or a DCT. So, I went from two private institutions or private companies to a public institution. And then that was a whole different experience, you know, looking truly at it from a public side was important to the shareholders, because again, we’re, you know, working on DCT. It’s a new public road, and we had, you know, they said early on, it’s, we’re, we’re, we have a fiduciary right to our shareholders, we’re making decisions for the institutions and the individuals that own DCT stock. So that, you know, looking back, I mean, I honestly could not pick better spots to have landed and learn, learn from because it’s made me who I am today. So the DCT run was great. I helped on the acquisition side; they wanted to grow the Southern California portfolio, we brought in Jeff Balan with Panattoni. To round out the development arm. So that was great to be able to work on the development side, as well as the acquisition side. And the resources that we had in that organization were great, you know, we had people that could help entitle designers, asset managers, money, what, you know, the capital wasn’t really an issue. It was really just going out and finding the right opportunities, whether it be through existing assets or land for future development.

 

Justin Smith 

You got to focus purely on that part.

 

Jake Smith

Yeah, it was an It was good. I mean my, my role was all of La in Orange County. During my loads, I say, for four years with them. But, man, maybe 700 million of acquisitions and development with him. So that was great, you know, deal flow, high volume, working with Investment Committee, understanding that process. That was a great learning experience.

 

Justin Smith 

That’s a huge amount of deal flow for a few years two,

 

Jake Smith

Yeah. 2012 to 2016. Yeah, 2016 and a half. A lot of good deal flow.

 

Justin Smith

Yeah, that’s recovery time. And I love how the string of doing a deal with the selling a disposition and having me like a meeting Bud, and I love how our world goes together through deals and relationships like that, that, like tracing those, back to the story. Sources always fun to see how people always get connected and linked up and how they help you know how everybody gets where they need to go.

 

Jake Smith

Yeah, you’re spot on, Justin. I mean, I think the important thing here that, that I kind of the takeaway was doing the right thing. Be fair. Be honest. And don’t try to play games and treat people how you want to be treated. And I think that you’ll be pleasantly surprised that how it comes back in is paid off in dividends. So yeah, it was great, you know, Bud said he’s like, Hey, you handled yourself incredibly professional. You’re fun to be with. You’re smart. I want you on my team. It was a great compliment. And so yeah, moved, moved over. And work with them for a couple of years. And that was great. And, and that led me to Duke and meeting Chris Burns on a competitive site tour, meeting him and him and getting to know one another, in a spot opened up over at Duke in mid middle of 2016. And made the move, and I could not be happier. It’s been a really good run. You know, we’ve, and we hopefully continue to run. Our office, when I started, we were 16 out of I think 23 offices in terms of square footage and NOI. And I think we’re now third or second in the entire company. We do, you know, as a company. So how Duke was, we owned office industrial, medical office and retail. Yep. So in 2009, the decision was made, and basically from an analyst’s recommendation was that focus on one food group. So we, as a company, said, Okay, we’re going to divest out of medical office, retail and office. Reinvest into the industrial do pure-play industrial re, which we are today the second second-largest industrial re pure-play industrial read, we own 156 million square feet. When I started in 2016, I think we had 2 million square feet, and now we’re up to 15 million feet.

 

Justin Smith

In Southern California,

 

Jake Smith

in Southern California, we do over the last couple of years. We typically do between 250 and 350 million square feet of, or 250 to $350 million of development volume, which includes land and the construction costs a year just out of our office. And that’s about a third of the overall development volume in the in our entire company. So on a national presence. So we will typically do about a billion of development a year. We’ve been running that for the last five years. And we do out of our office. We do about a third of it. Which has been great. I mean, we’ve had some great success Southern California hi bear market, tier-one market, all the analysts they want to, you know, when we, when we’re compared to our peers, that’s the one thing that we’ve been playing catch up. Because we haven’t been deep in this market for that long, not like Prologis. Yeah, some of the other first industrials of the world. But we have, you know, broken through and developed a lot of the square footage. I would say when we were at 11 million feet. We developed more than we acquired which I think says a lot, especially in the high Highbury markets like this. I would say that the amount of resources that we had a DCT, I would say is double what we have at Duke and resources that are key to the development side. We’ve got in-house development services, which helps with entitlements, site plan, layout, we’ve got a pre-con division that helps with pricing, and then we’ve got. Yeah, the project management group that handles either third-party, third-party, or self-managed developments. And I would say that I don’t know of anybody within our peer group that self performs on developments, but we do so depending on the workflow.

 

Justin Smith 

are more vertically integrated,

 

Jake Smith

Correct. And then, and that goes back to like, what my earlier kind of comment is being put in spots that allow me to learn from others, the good the visibility and experience on other parts of the business that I hadn’t had in my previous jobs. So it’s been great, you know, especially on the entitlement side, the pre-development pre-con side, that’s part of the breath that, that I needed to kind of fill. Yeah. And gain experience. So that’s been great. So yeah, it’s been a really good ride we actually just had. So our company does a leadership conference. Every year, this one was virtual. And when I when, when I started 2016, I do we got offs of the year. And then this following year, we got the office of the year again, and basically, it’s you rank yourselves amongst the other 20 offices across the country, based on deal flow, and ally, and performance. So it was nice to get that award again. So Southern California has been a nice market to be in.

 

Justin Smith 

Yeah. And what’s so great is it’s there are so many good markets. So to play a role in the rise of the presence here and to help make that like a robust platform. Yeah, what a, what a great time and great to participate in, I imagine,

 

Jake Smith

oh, again, it’s rather lucky than smart. Sometimes. I’ll take luck all day.

 

Justin Smith 

Yeah, that’s some of the past. How about the present? The lay of the land out there, in terms of what you see on deals that you’re looking at or that you’ve worked on over the past year? And like sentiment and trends, and what sticks out in my mind when I think about all of that is 12 million square feet of positive absorption in IE last year. And that’s the biggest figure that is like, I can’t get over that. And that’s the manifestation of technology and trends and pandemic and all sorts of different, like outside influences. So I’m interested to see kind of how you’ve experienced that.

 

Jake Smith

Yeah. So I’d say the trends that have stuck out that I think have driven a lot of this market run is when you look at year over year rent growth. And it’s really, to me, it’s driven by demand and limited supply. Especially in the info markets, there’s only a handful of buildings that are come out of the ground per year into the supply. You’ve got, you got all sorts of tenants that are, you know, really clamoring to find class A state of the art distribution space. And when it comes available. I mean, it’s we’ve been very fortunate, we’ve released a lot of our, our developments. So you’ve got this year, every year, the last, you know, five or six years of the north of 10% rent growth. And it’s driving land prices. I mean, when I in 2012 when most buys freeway spring site at $26 a foot off the 5- freeway, I’m scratching my head, I’m going you’re insane. That’s just crazy.

 

Justin Smith

I mean, there’s nothing today.

 

Jake Smith

Yeah, if that land was available today. It might be $80 95 bucks. I mean something I don’t even know if you could put a price on it. So I mean, you’re looking at land that’s gone, arguably from $25 a foot to 75 and $85 a foot in a matter of Nine years. What I’m also seeing is, you have this risk to get projects developed. But to me, there’s so much capital chasing after these deals that that risk has been priced out. It’s been priced to perfection. So were, you know, if you’re a developer, and you’re pricing to a four and a half, but there are risks, there’s entitlement risks, there’s environmental risks, there’s all at least lease-up risk construction risk, there’s all this risk involved. But it’s not priced into that four and a half because if you look at you can go four and a half on a development yield, or maybe it’s, you know, 75 basis points on a stabilized asset. But develop, you know, it’s creating value and creating value is really through development, not necessarily through acquisitions, because the acquisitions, your value is created through cap rate compression, and rent growth, not taking a piece of raw dirt and, and developing a project. So the biggest trend I see is that I believe the risk for deals is much higher than what the pricing shakes out, just due to the incredible demand to deploy capital on the development side. And the markets been the markets kind of saved, saved development, sometimes were big busts and costs big bust and time, rents have escalated returns, you know, you’re getting covered for either the delay or increase in costs or both on your developments just due to rent appreciation.

 

Justin Smith 

It’s too competitive to price the risk. Yeah. I really assess it.

 

Jake Smith

Yeah, I feel like there is there’s an inherent risk. And pricing is so crazy that that risk is priced out of.

 

Justin Smith 

Yeah, I would think that quantity of capital would also lead there to be more qualified and talented teams that can minimize that. Right. That’s probably the other side of that risk.

 

Jake Smith

There’s qualified teams. The challenge sometimes is that you don’t have enough time to evaluate everything through the due diligence timeframe. Because again, that like your price is one thing. Due Diligence timeframes, earnest money, all these get factored into the overall deal.

 

Justin Smith 

we need to go hard on day one

 

Jake Smith

So that’s, that was a competitive nature. I mean, for example, when we develop the building on Trojan way, ups, there were 27 groups chasing that deal. Just to give you an idea in all those groups were extremely well qualified and capable of doing the transaction. So the amount of pent-up qualified capital on the sidelines is waiting for a deal is tremendous.

 

Justin Smith 

Yeah, which probably I would imagine that being vertically oriented or integrated, right, that’s something that when you’re competing against 26, others, I would imagine that’s another huge competitive advantage when you have to present well, and you have to demonstrate the ability to close and to, like, fulfill the vision of the project.

 

Jake Smith

We actually weren’t the highest on that deal. But our construction and entitlement guys did a great job in the interview and basically demonstrated our ability to perform in such a way that Chevron was willing to take out the highest price because we weren’t the highest. But we demonstrated our ability to to be able to close and complete the project, and it gave him a comfort level. And again, that’s a seller where I think a surety of close is more important than every last dollar. Yeah. So it worked in our favor. That project was a huge success. We actually had a signed lease with ups before the project was actually entitled. So before we even know what, we could build on that. I had a lease with UPS.

 

Justin Smith 

We’re building whatever we can for them. Yeah. How amazing. Yeah, what? Yeah, what is like a sign of the confidence in the area and then the demand? Well, especially where we’re at with logistics and with last mile and everything I would imagine at that point in time that’s at the cusp of that trend or saying, you know, unlike the leading edge of it.

 

Jake Smith

There was during that time, that was back in 2017. There there was that there was a time where it was almost like an arms race between Amazon UPS, FedEx for securing locations, and infill markets, and today, it’s become more of a common, a common theme. But back then, that was, just to me, it was kind of the start of it. Yeah. And what was also nice is that being in a large public, or like a large institutional landlord, like, like we are, we leverage our relationships and multimarket. So we had a great relationship with UPS out of Atlanta. We’ve done stuff with them, they know that we can perform, that helped tremendously. With with the overall project, because I, you know, I didn’t have to sell them, that we could do it, they knew we could do it, based off of historical experience. And so that’s, that’s been great to leverage someone else’s hard work and heavy lifting, to provide or to allow for, you know, current success. So yeah, it was great.

 

Justin Smith

I think that’s even more important as time goes by, like, as you think through like future projects, who your tenant base would be, who you’re building for, and being able to, like, leverage that more, I will be more impactful.

 

Jake Smith

Oh, we’ve been we’ve done that. I mean, we’ve had way players and things example where we’ve done We’ve had great success locally that’s trans transitioned or translated to success in other parts of the country in multimarket, so that’s, yeah, it’s, it’s been great. Because we kind of, we pride ourselves on that the repeat business side of it of things. And even I mean, a Wayfair in a small example, Amazon, is, is a huge example of where multimarket past, experiencing success. They’re one of our larger tenants or percentage of tenant tenants in our portfolio. And they know that we can perform, so we’ve had great success with Amazon, recently,

 

Justin Smith 

and what our challenges these days, when you think of entitlements, cities, municipalities, utilities, what are some of the, it seems like, a lot of those are like eternal challenges or that are just inherent in the ground-up development or any of those really changing much?

 

Jake Smith

Yeah, I think the two main challenges is finding dirt that you can develop. And the second is the cities the municipalities have recently, not recently, I would say them, they just have I think they’ve always done it, but now it’s almost to the extreme where, you know, cities, they don’t necessarily want industrial, even though it’s gone, right. And they’re gonna fight, fight you on it, whether you, you know, if it’s zoned right, you’ve got rights to develop, if it’s conforming, and the cities will do whatever they can to fight and push against it. And really, it comes down to, I think, is it’s more of a money thing they show, sometimes these cities are running a budget deficit. And this is their way to help shore that up. And also for the actual, true impact. Traffic mitigation costs. So that’s, you know, we understand that the trucks wreak havoc on the infrastructure and need to help replenish for those costs to help with the infrastructure. But so going, going back to the original statement, I think the challenge is one finding land second. Even though it’s zoned right, it’s working through the cities and getting a project approved. And what’s scary is that the voting bodies aren’t necessarily the most sophisticated. Sure, which I feel like is, is kind of a market imbalance, the half individuals that truly don’t understand how the studies are looking at the project. And they’re making decisions with not truly understanding how it all works. That’s the scary part. And we’ve found ourselves in, in spots like that, where we’re zoned right, we’re conforming, and the city’s like, nope, we don’t like it, it’s like, well, now we have to take legal action, which costs money, you know, the longer a project sits without being built, the more expensive it is. So that’s the challenge that we’re also trying to face. It’s scary to see that these, you know, Council and Planning Commission’s have the ultimate right, and they’re, they’re not necessarily, I think, getting all the facts, right.

 

Justin Smith 

What a tough job all around. I imagine the different things they need to know about, not just real estate, right? Like all the topics that they deal with, I feel like so much of that is also like, education, right, and helping demonstrate what you know, the importance, and I’ve learned so much of that with a few different projects of just how much you end up having to teach and, and in and of itself is an opportunity, right to show why it’s important and how it plays a role in e-commerce and in I mean, now with this so much being shipped, we’re all blessed to have had that as an alternative over the past year, right? Or that was such a great asset that we all have, and someone had to have been on board with that or gone along with projects for that to be possible. So it seems like yeah, it is a that’s an interesting challenge.

 

Jake Smith

I think the pandemic has pretty much just taken like the lighter fluid in spraying it on the fire because

it’s shined a magnifying glass on how important the last mile logistics component are to everyday life. Some of the challenges, though, is that these cities, where we’re all guilty of ordering stuff online, and Amazon, you know, coming to your doorstep, but you don’t necessarily want the last mile logistics facility in your city. So that’s a challenge that we’ve come across is that we’re trying to, in some cases, get the last mile. So facilities entitled, and the residents push hardback. And it’s that whole not in my backyard. The mentality I want you to know, I’m getting I’m part of the problem, but I don’t want that problem to be in my city. So that’s, that’s a that’s been challenging. But I think when you ultimately look at the debt, the data, and the facts, those last-mile facilities are at least one of the least impactful from admissions to traffic measures and mitigation measures, and infrastructure deterioration than a typical industrial because these are vans that are driving they’ve got set routes. You know, those last-mile facilities want to be within seven miles of their destination. Yeah. So is that that’s somewhat of an ironic thing that was cities, the here a logistic or e-commerce and they just think the worst, when in reality, a traditional distribution tenant is far more destructive and impactful negatively impactful on the surrounding areas, then these e-commerce users so.

 

Justin Smith 

and I don’t know if you’ve seen some of the where Malcolm presentations about as they’re specking out the multi-story the two and three-story for urban locations. That’s it was super interesting to see how they took a blank canvas and figured out, okay, how can we do this in a way that we can construct in a way that we can get the capital markets behind in the way that the leasing brokers can know that they have product that’s desirable to the demand, and in a way that can satisfy the residents. And it sure is interesting to see if any of those can come to fruition or how long it takes. I assume it’s just a matter of time. And then some of those had, like additional non-industrial components to it to either help with the use the last of the space, if it was a third-floor space and self-storage, or if it had some kind of retail component for the facade or for some of the like, areas of the building that weren’t functional or weren’t, like unnecessary for the industrial users. But that could be more helpful for the community. I’m not sure in LA how much of that we’re going to see in the Inland Empire. Right. But when we start seeing a couple in urban areas, I feel like that’ll be something that’s new and exciting. And that might, you know, help the conversation a little bit.

 

Jake Smith

I do think that the multi-level there, there is a there’s a place for it. I do think it’s in Super urban areas and geographically constrained areas. I know the parts of the world, like Japan, for example, where they are constrained and incredibly dense. I think the multi-level does work. I think Pacific Northwest are some spots where it could work. I think in LA, it may just be a matter of time. I’m, I’m kind of I guess I need more convincing because the challenges that I that, that I think about one the multi-story that I’ve yet to one, there’s not enough data to like, draw a conclusion, but you know, some of the challenges I have are, is it a multi-tenant scenario, and or single-tenant scenario? And for? And, you know, an example is? How does the first-floor rent compared to the second-floor rent? And how does it how those rents compared to what a standard market rent would be for a single story? Those are all the things I’m always thinking about?

 

Justin Smith 

And has the 3PL world gone to deal with that are out? Yeah, again, a price that in and how’s that effect then these are?

 

Jake Smith

Exactly. And then you have site dimensions because only certain sites that have certain minimum dimensions can even accommodate a multi-tenant or multi-level industrial scenario yet, you can’t have the ramps too steep and enough. And enough building depth to either run the ramps and also have multiple access points. So all challenges, I think all things that will eventually work through I do think LA is a little bit because I kind of you know my mind, I’m going okay, you convince somebody to come to lease the second floor of an industrial warehouse when they can just look across the street and lease the first floor, or, you know, single floor, industrial, you know, it’s hard-pressed to say, hey, I’d rather go in that the second story versus the first floor.

 

Justin Smith

They are not constrained enough geographically,

 

Jake Smith

I think I think we need to be more constrained. But the LA basin, I mean, it’s a billion square feet. So yeah, and it’s a billion square feet on pretty much single-story industrial. So, yeah, I think a lot needs to change before multi-level becomes the norm. But I do think that there are parts of the world that it isn’t the norm and will continue to be the norm. And I think the New Jersey’s the New York sub markets that Seattle submarkets third, they’re starting to come around where that’s becoming and maybe even downtown LA if you’re really if you need to be really close to downtown LA. Maybe the multi-level does get there. But again, now you’re thinking about the pandemic. And these are things I think like, yeah, you know, you have everybody moving out of San Francisco because of the pandemic so being in close tight quarters high-density population. Will it come back around? Yeah, I think so.

 

Justin Smith

Today is not the day for making that decision.

 

Jake Smith

Exactly in the same for like downtown delays. I think we’ve we’ve got some time to heal those fresh pandemic wounds. That living in a high-rise apartment complex will make you feel safe once again.

 

Justin Smith 

Well, when I hear about the first one being built, you’ll be the first person that has gone. Check it out together.

 

Jake Smith

Exactly, exactly. Yeah.

 

Justin Smith 

Yeah. Well, Jake, it’s an hour. That’s awesome. I hope that was fun. I figured that was better than I could have imagined and always great to learn more and kind of kick around the business. And that was a lot of fun. And I think for Grant, it’s always good for Grant to hear some of the stories and how you always get the history in real estate. I love hearing more about that. So I appreciate you taking the time with us.

 

Jake Smith

Well, I appreciate it and am humbled that you guys would actually want to talk to me speak or Have you listened to what I have to say. But yeah, I truly appreciate both your guys’ time, and it’s good to always connect with you, Justin. And hopefully, we can find a way to work on some business together.

 

Justin Smith 

Without a doubt, we’ll get cooking and brainstorming.

 

Jake Smith

I like it. I like it. Well, thank you, guys. You guys have a good rest of your afternoon. Okay.

 

Justin Smith

Yeah, take care. See you later.

 

Jake Smith

Bye, guys.