Fall Forum Highlights Capital Markets

NAIOP SoCal’s Annual Fall Forum featured a leading panel of industry experts including Brad Cox, senior managing director for Los Angeles, Trammell Crow Company; Glenn A. Sonnenberg, president, Latitude Real Estate Investors, Inc; Michael Speer, senior vice president, Brookfield Property Group; and Moderator Todd Tydlaska, executive vice president, CBRE. The panel discussed investment strategies and the markets and property types on a local and global level that are on their radar.

Michael Speer:

Most of the retail we’re looking at these days is retail that could be redeveloped into other uses. We’re adding multifamily, offices, limited hotels in certain cases, as well as adding more entertainment, theaters, restaurants, etc. We’re also looking at the excess land opportunities as many of these malls tend to have 30, 40, or even 50 acres of land that come with it. So perhaps it shouldn’t be a mall, but because many of these sites are very well located, their land use can be repurposed.

We have an arrangement with Macy’s, where we’ve identified 50 stores around the country where we’re in the process of doing due diligence. We’re trying to work through different redevelopment options for Macy’s. We’re just looking to identify a part of the market that may be oversold and exploring new opportunities. That’s how we view retail these days.

Glenn A. Sonnenberg:

We’re different from most of the world in that the American Dream is to own your home. For much of the rest of the world, the dream is to rent your home. That allows people to be much more mobile. We learned from the last downturn. We had people who were trapped by mortgages. Now there is a generation of people with huge interest rates on student loans who say, “Wait a minute, I don’t know that I want to own a home. First of all, I don’t know if I could come up with the down payment, I don’t know if I could qualify for credit. Why would I own a home and be trapped when jobs are so liquid, when people are moving around so much?” Mobility is the basis, I think, of economic advancement.

At one point 68% of Americans owned homes. Now it’s down to 62 or 63%. People say it’s going to go down to 60%. The fact is that the number of people looking for rental homes is not just the result of fewer people looking for homes. The fact is that there’s just more people. There’s tremendous demand. That demand is thus far unquenched, and it doesn’t appear that it’s going to be solved any time soon.

Brad Cox:

We’re LA County-focused, so to the extent you can get any new industrial in LA County, that’s golden property. We have a billion square feet of inventory at 1% vacant. It’s probably the most desired investor class across the U.S., and LA is at the top of the list.

I’ll give you an example. We bought 60 acres in Compton. We entitled two 500,000 square foot buildings, which were the two largest buildings in LA County when we started spec construction. We leased one to Best Buy, and the other to UPS. Best Buy moved there instead of going to the Inland Empire due to the cost of taking product out, taking product back in and delivering it to 10 million people in LA County. UPS went there just because thousands of jobs needed to be filled within a 30-mile radius.

We’ve got a million square feet we’re doing out in Santa Clarita. We have two million square feet in the second and third and fourth phases. But we’ve up-sized the buildings, going from 32- to 36-foot clear, primarily because the tenants want these clear heights to handle the robotics.

We see an ongoing opportunity for infill industrial due to that cost of taking the product out and bringing it back in. It’s dramatically different today. There’s also the added 12-cent gasoline tax just around the corner. That’s a huge difference, so that drag cost just went up another 22%.