Chad Griffiths-Industrial Real Estate

Seeing large-scale industrial warehouses go up around the country is one thing; but, having the data and understanding and deal flow of these monstrous structures is quite another. 
Tune in to hear a leader in the Warehouse space, Chad Griffiths.


https://www.bridgestoneinvest.com/6-success-tips-from-rich-dad-poor-dad-robert-kiyosaki/
https://www.bridgestoneinvest.com/deconstructing-the-k-1-tax-form-for-passive-investors/
https://www.bridgestoneinvest.com/investing-in-industrial-real-estate-pros-and-cons/

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Instagram- @jeffdavis_bridgestone
YouTube- JeffDavis_Bridgestone
Twitter- @bridgestonecap
https://www.youtube.com/@ChainReaction-vh7rm
www.bridgestoneinvest.com

Transcript

Jeff Davis: 0:53

Welcome to Chain Reaction Tales from the Supply Chain. we have today, somebody with us that specializes in industrial warehousing. And for us in the logistics portion of supply chain, we all have offices with our back to a warehouse. We're all in and out of warehouses. We're walking those floors and it's gonna be real fun talking with Chad today because he lives and breathes industrial warehousing and it's gonna be fun to get his. Pulse on the market and what's going on past, present, and future. Chad, if you could please give us an introduction to yourself.

Chad Griffith: 1:39

Thanks for that, Jeff, and appreciate being a guest on the show. It's a, it's an honor to talk to you again, and I, I think we'll unpack a lot of fun things in this show. So I started in industrial real estate in 2005. I've been a broker since then. So 18 years I've been at the same company. And then I started investing in industrial properties myself in 2014. So I, I live, breathe, and sleep this industry, and I've got a. Podcast myself talking about industrial real estate. So I try to keep abreast of all major topics, anything related to warehousing, like you mentioned in the global SUP supply chain. Because whether it's a, a warehouse in China, or whether it's a warehouse on a port in the US or in inland market, there's nuances to all of them. But they all play a pivotal role in the overall supply chain of getting goods from the factory floor to my mine and your front door. Yeah, absolutely right. And a lot of times what we are running into is how different companies are managing their inventories, and that's where we, Are helping companies, Do you need a, longer lead time? Do you want to keep your inventories, do you wanna forward stocking location, regional distribution centers just in time? that's our discussions with the clients. then we're going to brokers such as yourself to understand what's the available capacity in a market. What is your. Pulse on the market. What's the capacity from a warehousing perspective? What's the demand? What's Amazon telling you? What's Bezos? Telling you he needs and what's available, what's he willing to pay? Well, it's interesting because you hear what's in the news, the headlines, which are always sensational. The, the mainstream media seems to be in the business right now of trying to either scare or frighten everybody. you hear that Amazon has given up roughly 30 million square feet worth of space that they had planned, whether it was. In construction or whether they had just had an intent to do it. You hear that they've given up 30 million square feet, but what they don't tell you is they were originally planning 130 million square feet worth of expansion. So yes, they have canceled plans for 30 million, but they're still proceeding on another 100 million square feet. So Amazon is a beast. They, they are the barometer for the warehousing market as a whole, just given the size of their e-commerce market share. Where I would say that there's a difference in attitude and there's a difference even in the market itself is when you start. Looking past that macro scale, which we all tend to do, we all, we're all trying to all figure out what these macro trends are, and ultimately those have to be boiled down to a micro level where you look at each individual market and if you look at some of these major port markets, New York, long Beach, LA being. Probably the main three right now, they're all sub 2% vacancy rate, and their rental rates have escalated considerably over the last three years. So these port markets are really hot. It's very difficult to even finding capacity in there. So a lot of. Companies are looking to either add another port to their supply chain. So instead of focusing just on Long Beach or just on New York, they're now considering southern markets. Or they might even be considering a Canadian market to get port access where you're not having this supply constraints. But if you start going inland, then, then you start getting into some of these more, like a Dallas is an example. Dallas has actually led. The US last year in industrial development, they had 70 million square feet worth of industrial property under development in an inland market, which is crazy to think of, but their vacancy rate is more healthy in the five to 6% range. So there's, there's availabilities for companies that can be creative, but for that company that says we wanna lease a 200,000 square foot warehouse in Long Beach, it's gonna be very difficult finding something that's gonna work for them. You hit on a whole lot there. Right? So one thing you just hit on was the vacancy rate. What is a healthy vacancy rate for a market? I think Dallas is probably the best example and, and I've been doing this for 18 years and I've seen even in my own market where we had sub 2%, we were probably even sub 1%, so we were on par with some of those port markets. Right now it's very, very difficult finding space, so it becomes a heavy landlord market when you get that low. And then if you actually compare it to the office market right now, and there's office markets that are seeing 20 to 30% vacancy, that's a very unhealthy market. For the landlords where there's just a lot of empty space on the industrial side, I think Dallas is a pretty good represent representation of a healthy market. Tenants have options. Landlords aren't panicking that there's not a, a demand from the tenant side. So I would say long answer a, a short, a long answer condensed into a short answer, five to 6% is probably a healthy market. Yeah.'cause that seems, and I, I guess, you know, And you and I have talked, I'm, I'm also a commercial real estate investor driven by my supply chain thesis is, which is where those macro dollars, right? You were just leading into that. Right. Amazon, where are they going and where are the big commercial dollars going? And that's where the influx of investment dollars will probably follow. Mm-hmm. Agreed. And that's kind of what that commercial real estate vacancy rate is a good one. Right. 95% occupancy. So long Beach. So you're saying that even Long Beach with its problems there's, there's headlines. You're, you're leading into the, the headlines that there's a lot of departure from Long Beach. I live in Houston. We see a lot of growth in Houston. There's still companies looking to park their product there, and we, we don't see any challenges other than just too much demand and not a lot enough. Capacity coming on online. Mm-hmm. So interesting, and I've studied this more, more than, than I care to admit, almost at a nerd level. Hobby, hobby level here. So Long Beach and LA at the peak had 40% of any good that came into North America would come through Long Beach or la. So dominant Port by a country mile. Interestingly though, their numbers are down, not even just from year over year, but from pre covid levels. The imports into the Long Beach in LA ports are down 28% pre covid numbers, so there already is a shift and it's undeniable. There's, there's no, it's, it's clear and evident actually at this point that there is a clear shift away. From the Long Beach and, and LA ports, and that could be labor constraints added to warehouse capacity, issues of finding available space. It's, it's not a pro pro-business state, California in, in general, they're putting a lot of problems into not just the warehousing industry, but the trucking industry, as I'm sure you're aware of. there's even a number of counties that are proposing outright warehouse moratoriums where they don't want to even add more warehouse space. So I think a lot of these companies are saying, we still need to get our product into the US but we're running into all these issues in Long Beach and LA and if there ever is a disrupting force again, and you have to, you see a hundred cargo ships that can't even dock. I think a lot of companies are saying We're still gonna look at LA and Long Beach. That's there's, that's not gonna change. There's always gonna be demand for that just because of the proximity to China. But a lot of companies are not gonna run everything through there anymore. So that's where you start seeing companies now looking at Charleston or Jacksonville anywhere on the East coast even coming down into the South coast, Mexico. Coming into Canada, there's the whole thing with the CP Kansas City Rail merger that was just recently approved by the Surface Transportation Board, single rail line, now connecting Canada, US, and Mexico. I think that's gonna change the flow of freight. I, I think we're actually gonna go away from that traditional east to west. Movement of rail and we're gonna see more south to north movement. I don't think that LA and Long Beach are in jeopardy of, of seeing a crash I think that there's still a lot of reasons to be optimistic about that, but I think that they've peaked. I don't see that market continuing to grow at the same. Frantic pace that they have over the last few decades. I think we're gonna start seeing other port markets. Savannah being a really good one. You, you look at the million square foot buildings going up around the US right now, Savannah is doing very, very well for, for those reasons, is that companies are just looking at having other options as opposed to getting bottlenecked into a single port like that. Everybody take note. Chad Griffiss said, invest in Savannah. That's what I'm hearing. I, I, I like Georgia, I like so if as an investor myself, everything that I have is concentrated in one area. But I'm looking to move to to other areas as well and, and where I'm most interested in Sunbelt. Class B industrial in the Sunbelt, but I'd exclude those blue states. Not, because of, of any other reason other than they don't seem to be as pro business, as the, as the red states. I like Texas. I, I like Florida, I like everything up that East Coast. until you start running into like the New Jersey and New York area I'd stay away from those. But a Savannah looks like. A, a great market for me right now, just on the amount of massive buildings that are being built. All those companies are gonna need to have services themselves. So they're gonna have forklifts, they're gonna have racking, they're gonna have robotics. All of that stuff has to be serviced by even smaller warehouse spaces and manufacturers and service providers. And I don't think that infrastructure is being built to accommodate these. Big box warehouses right now. So I, I like Savannah. It's, don't I, I always say don't take advice from me. I'm a guy sitting in front of a black wall with a light behind me that I'm the last guy that anyone wants to take advice from. Yeah. But my investment thesis myself mm-hmm. I'd be very bullish on, on any of those big port markets. Savannah, Charleston, Jacksonville, anywhere down in Southern Houston. I like Southern Texas. I really like Corpus Christi as a market right now for that reason too. But yeah, it's, I, I would personally, I would stay away from California and New York. That's just my own investment thesis and I'd be pretty bullish on those red states in the Sunbelt. So we talk about the future growth being here in Houston. If, if you have driven anywhere along Highway 25 or 2 25 and, and, and down into that Pasadena Deer Park, port Houston area, over the past, if you did it 10 years ago and you do it today, it, it is warehouse central. Mm-hmm. And so the, the amount of capacity for warehousing Dallas is the same. It is tremendous growth. So the question for you, and, and I've not been to Savannah. I've not been to Jacksonville. I went, but I didn't get to go to the Port. W what kind of capacity has come online and what kind of demand is there still? And, and so how do we view those metrics for you know, What, what is needed still and what kind of timeline there's gonna be to catch up. You know, like I see that on the multifamily side market by market. You know, we are, we're 5 million homes short and there's this many units coming online in the next three years. Nationally, you can break it down and blah, blah, blah. Do you have data for that on the warehouse side? Yeah. So I could take it back up to that 30,000 foot view again. Yeah. Yeah. And two really interesting stats is that rental rates year over year, and I believe this data was in February. I don't think they've compiled March's data yet. But still I. Fe February was right when we were having the peak of interest rates. So I, I think that that's still applicable in today's market. Rental rates nationally have still increased and vacancy rates have still decreased. So you still have this market where rental rates are going up and vacancy is going down. That suggests, and that's usually a trigger for the development community to add more inventory. If you have those conditions, that's when you want to add. Inventory. The constraint that we're seeing right now is that interest rates are causing developers to actually pause. Yes. So there, it, it's anybody's guess, like my, my crystal ball is as murky as anyone else's. But again, just kind of how I try to synthesize all this information is if you have a market where prices are going up, your vacancies declining, and there could be development constraints which prohibit new inventory from coming on the market as developers. Pause. I think that we could be in a position, call it later this year, early 2024, especially if the economy starts to recover. If the, if the feds are forced to lower interest rates and that spurs on the economy, again, we could be faced with a pretty big shortage of, of industrial space, 20 24, 20 25, until that new inventory comes back online. Now the Cory of that is that the whole market can crash and then we see vacancy rates double and we see downward pressure on, on rental rates. That's certainly a, a possibility. I I don't think anybody can just look at this through pure rose colored glasses, but if, if much like yourself as an investor, I'm, I'm the same way, is that you make your. Your best case scenario, most likely scenario, and your worst case scenario. Even in that worst case scenario, I still don't see a lot of threats to the industry beyond if there is an economic slowdown, maybe rental rate has pause, or maybe there's a little bit of pressure on it. Maybe there is some uptick in vacancy, but. That if that's the case, everything is gonna be affected. So where would you rather be part? Would you rather be part in another asset class where there isn't all this upside potential, which I think industrial has unique into itself? Multifamily, there's downward pressure on rental rates right now. There's upward pressure on. All the expenses, operating and CapEx, so there's all this upward pressure. Where would you rather be parked? And for myself, I've, I've answered this question because I have the majority of my money in industrial real estate. Even if there is a downturn, I'd still rather be parked in something that I, I see a long-term outlook for with a lot of upside potential as opposed to being tucked into cash or. Or tbi. Those just don't excite me. So I, I like industrial for that reason. I still think that there's uncertainty over the next year or so until we have some direction on interest rates that will be the key lever that gets pulled or manipulated this year. And on the other side of it, I, I just see sunshine and rainbows for industrial. Yeah. Yeah. And so you, you've kind of touched on what the, the hot markets are that you, like. Basically any of the red states, you know, that's, that's where you're looking, you know, from a leasing perspective. What kind of activity are you seeing? Are, are you seeing the drivers go into those, those particular markets? And that's what is driving your thesis that way? Port markets are very active still. I don't see much of a decline there. There's, there's healthy activity for companies that wanna lease space in those markets. There's a lot of capital chasing very few. Availabilities, those markets are pretty hot. So from a institutional standpoint, I still see a lot of demand. Like the big companies like BlackRock or Prologis, those companies are gonna specifically choose to pursue those types of markets. I, I like the, I like the, I. The tertiary markets. That, and then again, this is just my own investment philosophy as opposed to talking about it from that, that macro level. Again, I like those markets where there, there are opportunities. You don't have that big institutional money chasing a very few opportunities. So that's, Houston's a very interesting one for me. Even though it's a, a major market in the US already, and there's a lot of activity. It's not on the same radar as a company like Prologis that's gonna consider. Los Angeles or Long Beach first. Houston's still that secondary market, at least from that, from their standpoint. So those are interesting markets for me. Really? Yeah. Why, why is that? Why is it considered a secondary market? Secondary in the, in from that big institutional standpoint? The, just the majority of their portfolios are in those very dense. Support markets. And I don't think Houston, even though Houston is definitely a, a, a main market from population and economic growth and the drivers in there, I think secondary through the lens of one of those big institutional industrial landlords, not through the lens of, of just everyday people who would see Houston as a major market. I think it's secondary through their lens, where they're more focused on those very tight port markets. Long Beach, la, New York. Yeah. Well, awesome man. And are there specific markets that you know, you are specifically your, your company is leasing, that you guys have leases, that you're open that you're looking for clientele to fill it up? Yeah, I mean, we're, our company is, it's a global company, but we're, we're a managed network, so it's essentially franchised offices all over. So there is, but there's, there's, there's availability for everything. So there's nothing specifically that we're, we're marketing as, as opposed to in any individual market, landlords are trying to lease space. Tenants are trying to find space. Yeah. Buyers and sellers are trying to transact. So yeah, no, nothing specifically that I'd wanna mention. Yeah. Okay. Well, fair enough. You know, I think we talked last week that those reports about large L T L companies and Target Costco, these guys are going robust. Investing millions, tens of millions of dollars basically in, in final mile delivery, which is going to consist of warehousing. I mentioned to you about some clients that are near shoring into Mexico, which is gonna affect the Corpus Christi market. It's going to affect the Brownsville market. That's gonna be industrial warehouses. It's gonna be multifamily on the US side. It's gonna be Mexico as well. So I'm right there along with you. You know, industrial warehousing is going to be continuing in demand just data, you know, you have your, your fingertips on all that data, and that's nice. How can folks get in touch with you? Chad probably my YouTube channel would be best. It's the handle is just at industrialize and I just make a ton of videos about anything to do with industrial real estate. Okay. Well that's awesome. So at Industrialize Yep. And. I will be sure to put that in the show, show notes, and anybody can get in touch with Chad Griffiths here at Industrialize on YouTube. He is an aficionado in the art of industrial real estate, and if you have any questions, I promise you he's very responsive, man. Hit him up. He loves talking the stuff. He is a real resource. Chad, is there anything you want to add? No, that's perfect. I, like I said at the beginning, it's an honor to be on your show. I look forward to your podcast journey and catching future guests you have on as well, because I, I love this topic and, and I'm hyperfocused on the warehousing side, but I also appreciate how broad it expands beyond that. So, very excited just to be a fan of your show and catch future episodes as well. Yeah, I'm, I'm looking forward to the journey. I'm learning a lot on it, and I'm, I appreciate you coming on and, and dropping some knowledge, man. So with that, we will sign off. Appreciate everybody tuning in to another episode of Chain Reaction. Be sure to like, share and subscribe. Signing off. Thanks Jeff.