RE Journals hosted the 14th Annual Industrial Summit where industry leaders discussed the state of industrial, how Chicago stacks up against other markets and the impact of the current political climate.
Adam Marshall offered opening remarks at the event on Thursday morning at the Crowne Plaza Hotel in Rosemont, Illinois. He recognized the immense progress the industry has made since the last downturn.
The first panel—moderated by Brian Forde, a partner of O’Keefe Lyons & Hynes—discussed the balance between spec and build-to-suit, how development strategies have changed since 2006 and what the political climate means for the industry.
Those who participated in the panel were Matt Goode, principal at Venture One; Amy Rzepka, senior development manager at Conor Commercial Real Estate; Kevin Matzke, managing principal at Clarius Partners; Matt Kurucz, senior manager of real estate development at Opus Group; and Adam Moore, senior regional director at First Industrial Realty Trust.
The panelists overwhelming thought industrial would continue to boom. All agreed that the balance between spec and build-to-suit was healthy and that spec would most likely outpace build-to-suit towards the end of the year.
“This will be a really telling year for supply and demand. If the product doesn’t get absorbed this year, then 2018 will be a very different market,” said Matt Kurucz.
Of course, e-commerce was a big part of the conversation and while last year Amazon dominated the activity, this year will be about smaller tenants and last mile warehouses. Matt Goode noted that in the past Chicago was seen as unfriendly to industrial developments, but now taxes are much lower and the city is excited for industrial projects as indicated by the change in planned manufacturing districts.
Kevin Matzke fielded a question about how Trump’s potential policy changes could impact the industry.
“Fortunately what we heard was mostly rhetoric and the threats are lacking. The industrial market doesn’t want to see a trade war. As for the general commercial real estate sector, the threats of taxing carried interest as ordinary income would be horrific. It would drive investment down, lower demand and cause havoc,” Matzke said.
The second panel—moderated by Peter Tsantilis, a partner Liston and Tsantilis—focused on investment in industrial real estate plus trends in financing and deal making.
The panel included Reggie Greenwood, director of economic development at CSEDC; Don Koliboski, vice president of economic development at Lake Count, Ind. Economic Alliance; Joel Kaplan, senior vice president and director of production at Inland Commercial Mortgage Group; Justin Fierz, principal at Midwest Industrial Funds; Ted Notz, senior vice president at Associate Bank; and David Bercu, SIOR, principal at Colliers International.
The main take was that the industrial market is active and attracting capital. The panelists discussed challenges in financing different types of projects, how lenders have changed strategies over the years and what can be done to keep industrial strong. In general, its a good year to be a borrower because banks are looking favorably on the industrial market.
“We’re not as fearful to take a chance on a deal,” said Joel Kaplan. “Spec isn’t as scary as it used to be for a lender or bank.”
While spec projects aimed at e-commerce tenants are popular, what’s more difficult to finance are specialized projects, Ted Notz added. It’s a bit riskier from a lending perspective because it narrows the tenant pool.
The next nine months will be telling for the future of the market, said David Bercu.
“If the new product doesn’t get leased, lenders will sit back and be cautious financing projects in 2018. We need to see strong user demand that will in turn drive a demand for lenders to invest,” he said.
Panelists also touched on the redevelopment of Chicago’s older product into last mile warehouses. The abundance of older product makes redevelopment a good option but adequate parking and rent hurdles for tenants are important factors in the success of the project.
The panel also covered what needs to happen in order to continue the confidence in the industrial market. Reggie Greenwood and Joel Kaplan agreed that access to a skilled workforce is critical to sustaining confidence in the industrial market. Chicago is known for having a strong, plentiful workforce and continuing that means getting young students interested in logistics and manufacturing careers, Greenwood said.
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