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J.D. Salazar is the managing principal for  Champion Realty Advisors, LLC. He founded the firm in 1997.  Since that time Champion has gone on to become the largest Hispanic owned industrial real estate company in the country providing real estate services to numerous Fortune 1000 companies. Salazar specializes in industrial and office brokerage.

Only 4.3 million sq. ft. of industrial construction was delivered nationwide in the first quarter 2010. It is the lowest rate in a decade. With little in the pipeline, can we expect to see absorption begin to pick up later this year?

A lack of new construction does not affect absorption in so much as it does not motivate end users to take more space. It does have an effect on vacancy and in most cases on net absorption. Assuming there is not a flood of

J.D. Salazar

sublease space coming to market in 2010 even a nominal amount of demand for space will have an impact on vacancy. The amount of net absorption will differ by submarket. A perfect example is the I-55 Corridor where gross absorption was approximately 800,000 SF in the 1^st Q. With no new construction and no new sublease space coming to market in the 1^st Q this gross absorption amounted to a 1% reduction in vacancy from 18.53% to 17.53%. In summary, no new construction will not stimulate absorption but will help the markets reach a healthy supply/demand balance sooner.

How have rental rates been affected across the three class types?

Rental rates are always affected by severe downturns or upturns in the economy. Today rental rates for Class A space are lower than they’ve been in 15 years. When lack of demand and over supply of  new space cause Class A rates to be pushed down it has a ripple effect pushing all other classes of space down. At some point in the downturn you have an accordion effect wherein the rate for Class A space and the rate for Class C spaces almost become the same. When this happens the demand for Class B and C space just about vanishes. Why lease inferior space when you get highly functional new space for almost the same price?

The multifamily/condo and now the office market have experienced a fair amount of foreclosures and distressed properties sales. How does the industrial market compare? What kind of distressed property activity are you seeing?

We are seeing little to none distressed property activity in most industrial markets we work in. Most property owners are either financial sound institutions (REITS, RE Advisors, etc.) or financially sound private investors. Cap rates for quality Class A properties with good credit tenants in favored submarkets (I-55 and O’Hare) are trading in the 6.5% to 7.5% range, when they are trading. Later this year we may see some empty spec properties be sold at 20 to 25% below replacement cost as some institutional investors unwind joint ventures or liquidate investment funds.

Many economists and industry professionals believe a recovery is now underway. What signs are you seeing in the industrial market that would indicate this is true?

Our manufacturing customers are reporting increased sales and our transportation clients are also seeing increased freight volumes. In addition, we are seeing an increase in demand for space from smaller users (50,000 SF to 10,000 SF). These are all good signs that the business community is slowly getting healthy.

What signs are you seeing that would indicate that we are still waiting for a recovery?

None of our clients are hiring new employees. They are providing overtime opportunities for their full time employees and hiring part time employees. Until we see real growth in full time employment any recovery will be muted and vulnerable to collapse (see Greece and the EU). The real estate industry will not be on solid ground until employment increases and consumption increases along with it.

Tags | Champion Realty Advisors, Chicago, industrial

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