Industrial Insights with Justin Rappel

Justin Smith 00:01

Good morning, everybody. Welcome to the Industrial Insights podcast. I have Justin Rappel of Pacific Industrial with me today and excited to talk about all things acquisition and development in the industrial real estate market. Justin, welcome to the show.

Justin Rappel 00:18

Yeah, thank you for having me. Excited to be here.

Justin Smith 00:23

We had a fantastic lunch at puesto and I must admit I was impressed with you and your team of just like the level of sophistication and nuance like of your take on the market and with the platform and it was good to get to know you better and so I thought you'd be a perfect person for today just to help go through part of the today's climate for trying to buy and to build. and that that would be super helpful. And then people would know a little bit more about what your acquisitions criteria is so that they could bring opportunities as well. Does that seem like a good topic for today?

Justin Rappel 01:02

Yeah, totally. Sounds good to me. And likewise, I was excited to meet with you as well. I know that we share an MRED background and prior to getting my master's in real estate development at USC, I was actually a broker for a while. So after graduating, I always kind of thought in the back of my mind, like, man, if I was a broker now, would it be different? Like, I feel like I could be way more lethal in knowing what I know now and being able to think like a principal. So I was excited to get together with you two and yeah, you put together an impressive group. happy to dig into what we're looking for and what we do in the market.

Justin Smith 01:38

You made the successful jump to the principal side that everyone dreams of. You go to school and you're a broker and you're like, gosh, how am I going to get to the other side? And then I feel like, yeah.

Justin Rappel 01:49

Yeah, it's funny. I I was a broker leading up to COVID and during the pandemic business was great. We were having a great time. And then when the pandemic hit, was like the plane just crashed into the mountain and we became more crisis managers and brokers for about 18 months. So if you're able to weather the storm, then I think a lot of brokers actually benefited in the long run, like they typically do in these kinds of recessions. But, Yeah, I mean, I had a, I was in kind of a unique position where I was engaged at the time. My wife was pregnant and the kind of eat what you kill atmosphere brokerage was starting to appeal to me less. So decided to use the pandemic to go and get educated and figure out kind of where I was lacking in skills to actually be able to hop onto the principal side of the business. It's been great for me. Obviously it's not all hearts and rainbows on the other side too. You think coming out of brokerage that the fact that you're going to be able to pull some levers on the principal side is going to be a big shift and it is, but at the same time we're kind of beholden to our capital partners and there's a whole litany of other issues that are outside of our control that we still deal with on a daily basis.

Justin Smith 03:00

You are not in your villa in Italy just yet. Yes.

Justin Rappel 03:03

No, it's on Airbnb right now.

Justin Smith 03:07

Yeah. For those who don't know, tell them about the MRED program. I was so fortunate to have found it. And I feel like it gave me everything I needed to go from feeling pretty competent to like, OK, I got a real firm hold on like all aspects of everything. It was such a great experience. I'd be excited to hear a little bit more of yours,

Justin Rappel 03:27

it Yeah, totally. I for me, I was coming out of, you I cut my teeth at Marcus and MilaChap, which is, you know, they give you a phone and an internet connection and say, go do deals, which is thrown straight into the fire. And so I learned a ton doing that, but it didn't really give me the hard skills that a lot of developers are looking for in terms of being able to build institutional quality financial models. And I mean, even things that I kind of discounted going into the MRED program, but like the design classes where you're learning. kind of high level how to design every different product type and you can really dig in as much as you want. But I mean, yeah, was a perfect transition for me being able to take a year off, just kind of focus on developing the skills that I needed to be able to make the transition. And also, I mean, the network is really second to none. That's kind of one of the primary reasons that people do the program. through the program, I met Dan Floriani, one of our founders, and ultimately ended up working with him. The program is great for me, I can't recommend it enough.

Justin Smith 04:32

I love it. When I was there, I was looking same exact mission. And then there was one developer where... He's like, I'm not hiring, but you know, here's my criteria. And I just happened to trip and fall on an opportunity that was right in a strike zone. And so we connected and closed and it paid for school. And it was one of those that was like, just a serendipity and yeah, having the right people around that are all focused and that are good people and like smart, smart cookies makes a big difference.

Justin Rappel 05:06

Yeah, that's a beautiful thing about brokerage is if you really bust your tail, you can build up a war chest pretty quick to go make big moves like that. So yeah, it was great. Glad to hear it went well for you too.

Justin Smith 05:19

Yeah, so what do you do at Pacific Industrial? What's your role?

Justin Rappel 05:23

So I am an acquisitions manager. We're a relatively small shop compared to a lot of the industrial development platforms in Southern California, but we have a pretty big reach. We have 10 people total in the entire company, so our investment committee is more, know, shouting across the office to Neil and Dan and our partners here, hey, what do think about this deal as opposed to sitting down in a boardroom? So, I mean, it doesn't come without its challenges, obviously. We're all kind of generalists in that we wear a lot of different hats. It's not like we're kind of siloed into acquisitions and then once we do our due diligence and finish a deal, then we hand it off to our asset management team or our development team. We're really intimately involved in these deals from cradle to grave. And so, I mean, again, coming from a brokerage background, it's been great for me to be able to learn hands-on the entitlement process. all the different moving parts that have to come together for you to not only be able to buy a transaction, de-risk it enough to get comfortable with it, and then eventually put a shovel in the ground. There's a lot of checks that you have to make sure you're along the way. So, I mean, in my primary role, we're basically looking for new acquisitions for us to buy, and for us, that's probably 90 % ground-up development, brand new, class A industrial product. across Southern California. We made a foray outside of California. We built an 800,000 square foot building out in Salt Lake about three years ago and that deal was great for us. So we are staying smart on other markets. Yeah, exactly. If we're going to plant a flag, we want to make it worth our while and make it a project that everyone's excited about. But that obviously means different things in different markets. In Salt Lake, we had an opportunity to build

Justin Smith 06:58

That's a good size foray. Yep, that's no small deal.

Justin Rappel 07:15

Truly kind of a monumental project in the sub market and we had great success in doing so. But we're also looking at markets like Vegas where we're not gonna go to Vegas and build a 400,000 square foot building because there just isn't enough land to do it. So it's really kind of taking rifle shots at stuff that we truly believe in as opposed to trying to do, we do two to four deals a year and we're pretty happy. We don't need to do 10 deals a year. We try to be very specific about what we look for and where.

Justin Smith 07:49

How would you describe the Salt Lake and Vegas markets?

Justin Rappel 07:53

Tight is definitely the first word that comes to mind. Both of them, if you just look at them on a map, you would never know, but they're incredibly supply-constrained markets, whether it's long-term family owners that own the lion's share of the developable land in Salt Lake or in Vegas where the Bureau of Land Management owns basically everything outside the city limits. So it's essentially an island in a desert. A lot of the quality sites just like in Southern California have already been picked over. I've heard that certain sub markets in Vegas are heading towards 10 % vacancy as well. It's challenging no matter where you go. That's kind of the beauty and the challenge with commercial real estate and specifically with development is that it's tough. If you don't have thick skin and if you are easily put off, then this probably is not the right industry for you.

Justin Smith 08:52

No, skin is the first thing you need. Yeah, it's been fantastic learning other markets and doing deals in other markets. I have not done anything in Salt Lake, but it sure seems like it's on the map, but it's a hard one to break into. It seems like that's the deal. But it's not without its own good demographics and job growth. And it seems like a lot of the reasons why you would want to be there are all present.

Justin Rappel 09:19

Yeah, I mean one of the brokers I met with in Vegas put it really succinctly. He said, we don't need every tenant in the IE, but a trickle in the IE is a flood here. So a lot of them are kind of jockeying with Inland Empire spaces for rent. And really the compelling story behind Vegas was that it would trade at a discount to the Inland Empire. But now because there's so much supply and because rents are so hard to quantify in the IE, I think Vegas is going to unfortunately suffer from that a little bit. Again, I think in these markets, you really have a rifle shot approach where you're not just trying to do every deal under the sun, but you're really trying to find something specific in a specific sub-market or a specific niche within the market, then that's where you can make an outsized return.

Justin Smith 10:11

Yeah. The Inland Empire. Yeah. We've got a couple of sizable requirements there right now. And we're making offers. And it is interesting to think of, if you're doing that, what would you offer? What approach would you take? And how

Justin Rappel 10:25

So are your tenants also looking at Vegas and Salt Lake when they're making their decisions or what's the process like for them?

Justin Smith 10:33

Yeah, that's a good question because everyone is different. You have the regional players where they don't do that. Like they are here for a reason and going to maintain footprint. But then I would say it's more of the national guys that will look at it on like how do I service the West Coast or the Southwest and I can make a case for anywhere. Increasingly, we're having companies do that and take a broader look. We're in the Pacific Northwest on a pretty decent assignment where they're doing the Pacific Northwest version of that, which is interesting to learn and to see and to think what are the implications of looking broader and looking for incentives or looking for a better labor pool. far, everyone I have had that has looked at the triangle down here kind of has ended up in Phoenix, candidly. But I was on the phone with someone in Phoenix trying to tell me they had 50 million still in their pipeline.

Justin Rappel 11:35

Yeah, I was going to say, is it just a race to the bottom out there and tenants are moving out there because they can get discounts or why do you think they're choosing Phoenix?

Justin Smith 11:43

The last deal I did out there it was one third the price on the real estate. Yeah, so that's that's gigantic and then it's interesting they were interested in the labor pool, not only like the wage rates, but just availability. And then like anybody, they still have a challenge. It's not like any place like labor is magically easy if you go to the right place. Like every place has its own challenges for who has the skills to work in a warehouse, who lives close by, who's going to be a long-term employee. And so it's something that's continued to be a challenge out there.

Justin Rappel 12:26

Yeah, that kind of drives our thesis in development as well. I mean, we're looking for sites that tenants are going to be able to occupy. And so we're trying to think like a tenant and meeting with brokers like yourself who have your finger on the pulse of how these tenants look at it, especially with your background with the supply chain management masters. I mean, I think that's a super cool designation that will help you service your tenants and us as we look for space because I mean we're starting to look in the high desert and look further afield for developments because I mean LA is just so infill and prices here have gone up so dramatically and obviously there's a huge disconnect right now between buyer and sellers' expectations. I mean on a lot of development and on leasing it's really the story of the Southern California market is that owners are getting offers in the stratosphere 18 to 24 months ago and now we're approaching them saying, we can offer you half of what we did 24 months ago, how's that sound? And they're like, get out of my office. So, I mean, there's a real disconnect, so we're having to look at other business strategies that might make sense. And there's a lot of exciting opportunities out there if you know where to look. I do think the high deserts present a unique opportunity to buy land at scale where you can develop projects that serve, they might serve niche markets, but similar to Vegas.

Justin Smith 13:28

Yeah.

Justin Rappel 13:50

I mean a trickle in the IE is an absolute flood in Hisperia or Victorville or Palmdale or Bakersfield or any of these other markets. I mean you go down to 10 there's plenty of land but I think the guys who are pioneering these markets also stand to be in a pretty good spot just because they're going have such low basis sees as if and when the market recovers.

Justin Smith 14:13

Yeah, it is interesting going to the high desert and looking at it and some of the product and then thinking through how confident are you there? Like, what would you build? Or would you only build a million square footer? You wouldn't build like a 500s or 200s or something. And in a slow market, are they going to do OK? Or you got to just like... get through that market or like it seems like there's a good amount of projects on paper but ones coming out of the ground there still are some but yeah I feel like that's it that's an interesting nut to crack.

Justin Rappel 14:48

Yeah, and we've got a lot of entitlement projects going on right now that I probably don't want to broadcast to the world too broadly, but if we reconvene in six or eight months, I'm happy to fill you in on where they stand and kind of our portfolio. But I guess it's a good segue into broadly what we're up to currently and how we're keeping the lights on and keeping busy. And We have three development projects underway currently we're working on. two big buildings in Anaheim, right by Angel Stadium, awesome location. Those are gonna be some of the coolest buildings in the sub market for sure. And we're getting a great reception on those as well. And then we're building a 240 and a 100 in Anaheim.

Justin Smith 15:29

Good sizes. Okay?

Justin Rappel 15:36

Yeah, and then we've got a 170 up in Santa Clarita where we're going to be tilting walls pretty soon and excited to see that one come to life.

Justin Smith 15:45

Fantastic. I'm looking for a 140 near Anaheim, so that's why I was like, man, I'm right in the middle ground.

Justin Rappel 15:54

Yeah, if they've got vision, put them in the 240. That'd be great.

Justin Smith 16:00

Ha I you were maybe not surprised, but like when we think of like legislation and Governor Newsom and development, what were the recent things that passed and how do you think that'll affect development for, I mean, it's gotta be the coming future. It's just long-term, not short-term.

Justin Rappel 16:27

Yes, so Newsome just signed assembly bill 98, which puts all sorts of enhanced design standards around industrial projects that are built within a certain distance to what they call sensitive receptors. So think schools, parks, hospitals, residential, and it just makes it more difficult to build industrial projects that have any kind of proximity to those uses. We think it's kind of

Justin Smith 16:54

Baseball stadiums wasn't on there, thankfully.

Justin Rappel 16:57

No, thankfully. And projects that were in the application process, which I guess will be further defined prior to the end of September, are actually grandfathered in. So I know a lot of people are scrambling to get projects into their respective cities, whether that's filing a formal entitlement application or maybe you just submit for like a pre-application meeting because the rules are pretty vague at this point. We were just on a Zoom call with attorneys yesterday. the vagaries in this bill seem like they're never ending. But who knows, maybe that's our benefit. Candidly again, we're not trying to do every deal under the sun. We're trying to do two to four of the right deals every year. And I don't think this bill precludes us from doing that at all. I think the stuff that we're working on now, especially some of our developments, it's actually kind of exciting because we couldn't do the projects that we're doing now if we had tied them up right now. So to that end, it's like, Maybe they're actually going be more valuable than we were underwriting. Maybe we're going to experience a little bump on those. And then for new acquisitions, everyone is really playing by the same rules. Everyone's going to get smart on AV98 and it's just going to move the goalposts. I don't think it's going to necessarily create our acquisitions in the grand scheme of development. I know everyone likes to complain about the permitting process in Southern California and it is arduous, but it's still... one piece of maybe a thousand piece puzzle in terms of how you get your project built. So, I mean it's going to limit your design constraints, it will probably limit what you can pay on a per square foot basis on your building, but when it's all said and done, I think it's just going to shift the market dynamics more than create or own.

Justin Smith 18:29

Yeah. Yeah, it's funny, I was thinking today about where the value is added and for brokers and when you think of like how clients value us, like half the time it's in finding the deal, half the time it's in negotiating the deal, or it's in knowing the contract or having the resources. Are you right when it comes to the thousand different pieces that have to all line up just right for something to be successful? Yeah, let's just one more new one to get sharper on and probably be tighter with your architect on.

Justin Rappel 19:18

Yeah, exactly. And frankly, at least it's one that you can quantify. I think the much harder part of development right now and the challenge that everyone is facing across the board is we just don't have any reliable comps to be able to underwrite rents. I mean, that's the million dollar question in any development we're looking at is how much can we push rents? Where do we think a realistic estimate of rents are today? Because if you're underwriting a deal in the South Bay, you're going to see comps at a buck seventy triple net and you're going to see comps at two forty triple net. So you've got to know the story between each and every deal in order to be able to make heads or tails of it. And even then, you're still not getting a very clear picture. I mean, even if you know the story with all the comps, there's maybe a dozen of them that you're looking at. And so trying to triangulate with such a narrow field to pull from. is really one of the most challenging parts of our industry. We can convince ourselves of rents are as well and trying to convince our capital partners is a whole different mountain to climb. I think it's just a tough point in the market where, as a capital partner, I don't blame him. No one wants to be the first mover because if you decide to make a bad buy, you could be on the chopping block pretty quick for it. for us, it's... We have to be aggressive because we want to do deals.

Justin Smith 20:43

Yeah, it's wild because I totally get it of the lack of comps or the lack of clarity. But then when you think of like the basis plays and like how much risk is there at this moment or you feel like, gosh, if we're not at the bottom, we are so far off the peak and so close to it, gut check doesn't. You don't get a vote of approval on a gut check, I feel like price per pound and basis plays, it is interesting. So I feel like this whole deal metrics part is super timely and is great to think through of in today's environment, how do you value and how patient can you be? And not everyone's capital is the same.

Justin Rappel 21:11

Totally. Yeah, it's a good point and I can think right now of three to five deals that keep me up at night because I'm thinking, man, I wish we had gotten those deals. Those are sweet basis that there's a story behind these deals where maybe you're insulated from all the chaos for the next few years. There's a couple of buys out there that I wish we could have been a part of. again, I mean, it's tough to capitalize these deals. And I understand that a lot of people don't want to be the first mover. But I think there are some great buys out there. I'm hoping that we can snag a couple for ourselves. We're working on a couple right now that we're very excited about, but we're definitely trying to replenish the top of the funnel and find some stuff that we're excited about. I mean, yeah, if you want to talk specifically about yields or how we look at deals, I'm happy to do it.

Justin Smith 22:21

Yeah, let's dig on in. think that'd be great. Not everybody gets it and everyone is different.

Justin Rappel 22:23

Yeah. Yeah. So I'll just give you kind of the short spiel about Pacific industrial and kind of the company as a whole. I mean, We were founded with a thesis that if you could find a way to capitalize deals that wasn't so dependent on internal rate of return, like so many merchant builders are, then you could theoretically build better buildings. Because if you're on an IRR model, you're incentivized to build it quick and build it cheap and then move on to the next project. And so the founders, Dan Foriatti and Neil Machurda, found a partner who was willing to buy into that vision and they've kind of built a portfolio based on yield on cost as opposed to IRR. And so to this day, we're really more focused on our going in yield, which is on an untrended basis. And we're less focused on IRRs because you're going to have to be in Southern California if you're If you're looking at IRRs, it means you have to assume an exit cap. And in Southern California, I mean, you could have monkeys throwing darts at a dartboard, picking better numbers than a lot of people who are underwriting these days. So we definitely have a garbage in, garbage out mentality in our underwriting. So we try to control our variables. We know pretty well because we're actually building buildings and we have great relationships with contractors and architects and civils and all the different consultants that we use. We have a pretty good idea and understanding of what those costs are going to be in our underwriting. So the two levers that we're pulling to see if these deals make sense are largely the rent that we're underwriting on the back end and the purchase price that we can pay today. So it's a constant push and pull of how aggressive are we comfortable being with underwriting our rents while at the same time figuring out a price that's acceptable to sellers. which is probably the biggest flyer in the market other than rental rates. So the two hardest things to quantify are basically the two most important. And I think that makes sense when you're trying to commit tens of millions of dollars to something as risky as real estate development.

Justin Smith 24:33

Are you more weary about anything taking the yield on cost approach as like the primary underwriting driver? like what's the good and the, I get part of the good, is there a part of, what's part of the bad or like what do you get when you go with that? That's different. I think capital is clearly like the primary one. You have to have someone who like a buys into that as well and who like can be patient.

Justin Rappel 24:59

Yeah, that's the hardest part and it's really investment thesis that goes along with it. Most people want to be in and out of a deal in three to five years. So for them, an IRR model makes perfect sense. for us, we want to find the cream of the crop, real estate, bulletproof buildings that are going to be feasible buildings for the next generation and find a way to capitalize them to hold on long term. And that's not to say that that's all we do. We've definitely done merchant building in the past when it's the right scenario or when it makes sense. that's kind of been the mentality and why we focus more on that. I mean, IRR is a great tool if you're looking in hindsight. If you already know a lot of these variables that are so hard to forecast, then an IRR is a great way to kind of check your work and see how a deal actually performed. I think going forward, if you want to build, you can call it a more detailed pro forma that takes into account rent growth or a litany of other items that you could plug in there, then maybe an IRR. Yeah, more assumptions. Exactly. The more assumptions you make, you probably want to put an IRR on there just to show how fancy your model is. But when it comes down to it, we really don't pay too much attention to it.

Justin Smith 26:03

Assumptions, right? Things that could go right or go wrong. Yeah. Yeah, that's awesome that you can just stay focused on the majors for sure.

Justin Rappel 26:27

Yeah, obviously, I mean, we have to be able to justify with our capital partners too. And so if they are working on an IR model, then we have to have it in our model and we have to make those assumptions. But we were kind of holding our nose while we do it.

Justin Smith 26:41

Yeah. Are you changing anything in the last couple of years of when you just think of what building features are most desirable? Or is it very just site specific of every size and dimension? you got to work with the built environment or like the site constraints first. Or you feel like.

Justin Rappel 27:02

Yeah, that's a good question. I think it depends on the size and the sub market that you're building in. I mean, if you're looking in Orange County and you know, there's so many different sub markets in Orange County, but if you're building something in by John Wayne Airport, for example, you need to have something that maybe has a little bit more office and a little bit more parking and amenities that are going to attract the kind of people who are living in, know, Laguna Beach or Newport and they just want a short commute and they're willing to pay a premium to get it. You gotta put different kind of fits and finishes on those buildings than you would if you're building out in the island empire somewhere. And then by the same, same note, I mean, if you're going to build a million footer out there, you better make sure that that thing is bulletproof from a design standpoint. You better have 185 foot truck courts. You better have acres and acres if you can get it of trailer parking. I mean, you gotta have a perfectly flat slab. You gotta have probably 42 foot clear at this point. mean, again, these are all decisions where if you're building to an IRR model, you're like, maybe we can get away with, you know, 40 foot clear instead of 42. But if you're looking at this thing, like I want to own this long-term and I want to have a building that I'm to be able to attract tenants for the next 30, 40, 50 years, you better spend the extra million or 2 million bucks or whatever it is to make these small design choices that are going to. have a wild impact on the leasability of the building as technologies that are hardly even used right now and that are hardly even on our radar start to become more commonplace. I mean that was an interesting one for us is really digging in on whether you should go 40 or 42 foot clear on a million footer because at this point most tenants can't even utilize up to 42 feet but as technology improves and as these forklifts get smaller and more nimble and

Justin Smith 28:37

Yeah.

Justin Rappel 28:55

where houses get automated, it's gonna be the standard that everyone wants.

Justin Smith 29:01

And we clearly don't go like pricing it on like the cubic foot. It is interesting to look at, go back to your lease comps and look at when lease comps are all over the place and try and like bring them back to was the taller building more valuable or did it just lease up faster? And some of those things are, you can quantify and some of them, yeah, it's. Yeah, it's more of like a feel good. It's hard to know. But we had that. Yeah.

Justin Rappel 29:30

Yeah, that's a good point. It'd be interesting to see a study of that, especially on the big box side.

Justin Smith 29:35

Yeah, we done a presentation in November that was analyzing by vintage and like rent growth by vintage. so that's not necessarily ceiling height, but it was just going to the point of like over time, how valuable does the building continue to be? And as new buildings become more competitive, like how do you like keep up with them? And so yeah, I could see that be a tough one where like ultimately that's the right call. But when are you going to know it was the right call? Is that right now, or is that like two leases from now?

Justin Rappel 30:09

Yeah, I mean you only get one chance at building these buildings, so you might as well err on the side of building a better building if you can capitalize it in a way that where it's still creative.

Justin Smith 30:19

Yeah. And then you guys sell them sometimes. So this is we're going to try and hold on to every last one we can, if we can.

Justin Rappel 30:28

Yeah, again, it kind of just depends on the deal. I mean, I think the majority of the sales that we've done in the company's history have been more market specific where it's like, you know, we're getting an offer at a three and a half cap back here in the run up and we're like, okay, it makes sense to take some chips off the table here. But yeah, I think a lot of our portfolio we're going to for the very foreseeable future. And we're just trying to build. build a portfolio as opposed to shout anything currently.

Justin Smith 31:00

Yeah, that's awesome. Well, and then I got to ask, what's your favorite part of the Inland Empire? Everyone has one that they like. They have plenty that they don't. Is there any area that you prefer to do projects or to fish in more so than another?

Justin Rappel 31:14

I mean, candidly, I'm kind of the new kid on the block. I don't know the Alien Empire as well as a lot of my cohorts because it's been so slow there since I joined the company a couple years ago. I mean, we've been looking at deals out there, but it's...

Justin Smith 31:23

Yep. You got to see the downside. didn't see, yeah, the upside so much.

Justin Rappel 31:28

Yeah, exactly. I didn't get to see all the parties out there during the run-up. But, I mean, the Ontario airport market is super cool. I toured that at the bus tour last year and it was just crazy to see not only the different, like how many buildings there are, but the different design standards that people have used. I thought it was super interesting to see the dichotomy and how much some people spent on their design and elevations as opposed to some people who were like, let's get this thing up as quick as possible and now it's like a concrete prison. But, I mean, yeah, it's definitely an interesting mix and you can kind of see the market fundamentals when you just drive around there and, you know, how people were feeling when they were building these buildings.

Justin Smith 32:11

Yeah, you probably have a better eye for that than most, right? Because you're in the weeds on design and especially on like some of the finishing touches that people forego.

Justin Rappel 32:22

Yeah, it's not going to design itself. Someone's got to do it.

Justin Smith 32:26

Yeah, that is a robust market too. Yeah, talk about like a place you'd feel confident in and that would recover well and like to be a great place to own long term. Yeah.

Justin Rappel 32:39

Yeah, I mean we own some great projects. We own a big warehouse in San Bernardino. We own a great project on Fontana right off the freeway. So those are markets that we know like the back of our hands and where Neil and Dan really kind of made their living early on in their careers. So we stay smart on those markets, but I think the supply demand fundamentals out there makes it incredibly hard to pencil anything because they're just to talk about it again, there's just very few lease comps that you can actually trust. And even with those lease comps, there's a huge backlog of properties that need to get leased before we can experience any kind of rent growth. So we're looking at all opportunities, but we look at those kinds with a little more scrutiny.

Justin Smith 33:24

Yeah, wind's the bottom there. That's a tough one to call. Yeah, I'm calling like, yeah, I'm saying like April maybe or something. Gosh, talk about recovery being slower. It's like 3x slower than whatever you think it could be or should be.

Justin Rappel 33:29

One's the bottom anywhere. Yeah, we're a lagging indicator always.

Justin Smith 33:44

Yeah. Yeah, Fontana is an interesting one. had one of these funny stories where there's this huge part of Fontana that are all and iOS sites, and then you'll have like houses. And one of our teammates had one of these experiences where like the guard dog gets off the chain and starts chasing him down the street. And you're like, it definitely like made him sweat and made him be like, man, gotta, I gotta keep my head on a swivel around here.

Justin Rappel 34:05

Hahaha Yeah, think Fontana is the poster child of AB 98's inadequacies as a rule because there's houses in Fontana, like you said, are surrounded on four sides by industrial and they probably have a bunch of trailers and containers parked in the backyard and it's like someone living there who runs an iOS yard or something and that still counts as residential. And so if you're trying to build anything there, you can. your options are basically deal with the new design constraints because you're so close to a house or buy the house, raise it, and then you have to build two houses somewhere else. And there's no standards as to what that house has to look like. Yeah. Yeah. And if you're tearing down a shack with boarded up windows, is that what you have to replace or do you have to build these new condos that you see on the news that are four or $500,000 a door for?

Justin Smith 34:56

That's the new one, right? build the two houses part.

Justin Rappel 35:13

for workforce housing, it's crazy.

Justin Smith 35:16

We're home builders now.

Justin Rappel 35:18

Yeah.

Justin Smith 35:20

This is a great 101 and maybe 201 on the development and what's going on and just like the mindset. What else are you, what are you excited about when you think of what keeps you fired up to be doing deals in the marketplace? Is there any trends you're seeing that you're watching and excited for anything else at the top of mind?

Justin Rappel 35:42

Yeah, I we're just excited for, I mean, I don't want to say for the market to turn back on because we're already getting deals done in this market, but just a little bit more positive sentiment from capital and a little bit more capital flowing. think once we see some institutional capital, placing some bets, then people will get a little bit more comfortable and the spigot will turn on a little bit more. But until that point, we're staying active, staying vigilant and looking at deals. And honestly, that's really what keeps me fired up is just continually looking at deals, continually building these relationships with you and with other brokers in the market during the downturn. Because right now you gotta do something to keep busy and hanging out with brokers like yourself and trying to continue to build that relationship and build our name in the market and just stay top of mind is really a lot of our focus right now.

Justin Smith 36:38

The never-ending journey. It's funny, it's totally not all bad out there. Like the more you look around, there's plenty of growth stories and plenty of like tenants that are doing great things. You just also get like the bankruptcies. And so it's been wild to see like the best of the best of like people raising private equity and scaling and then seeing the worst of the worst and realize that like, I feel like there's just more variety in the experience of what's going on on the demand side right now.

Justin Rappel 37:08

Yeah, I think it's really easy to have a boo-hoo, woe is me mentality. I mean, based on the state of the market or based on there's a million reasons why you could choose to play the victim. I mean, we try to stay fired up. We try to see the positive and see value in all this uncertainty and all this chaos. So yeah, I we're excited about what we have going on right now. We're excited to continue to build the pipeline and build the machine and looking forward to it. Hopefully a couple of closings this year and on to next year.

Justin Smith 37:42

Now we're talking. Justin Rappell, Pacific Industrial, thank you for joining me today. Yep.

Justin Rappel 37:47

Yeah, thank you. It's been pleasure. Appreciate it.

Justin Smith 37:54

And that's the deal Justin, it'll all wrap up on its own and buffer.

Justin Rappel 37:58

okay, sweet.

Justin Smith 38:00

I'll hit stop and then you'll see something that's like a recording, uploading and then that's.