Outlook on the Industrial Market for 2020 | The Stoler Report-New York’s Business Report

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♪ [THEME MUSIC] ♪>>EVERYBODY LIKES INDUSTRIAL PROPERTY. FOR YEARS IT WAS THE STEPCHILD. OH, INDUSTRIAL, WHY DO YOU WANT TO GET INVOLVED WITH THAT? YOU CAN’T RENT IT. YOU CAN’T DO ANYTHING. BUT E-COMMERCE CAME AND THE WORLD HAS CHANGED. THE WORLD IS DIFFERENT. INDUSTRIAL IS THE PROPERTY ASSET CLASS THAT PEOPLE LOVE FROM ALL OVER THE WORLD. IT DOESN’T MATTER. TODAY I’VE ASSEMBLED A GROUP OF INDIVIDUALS WHO UNDERSTAND WHAT’S HAPPENING IN THE INDUSTRIAL MARKET. MY GUESTS INCLUDE ANDREA HIMMEL, WHO IS THE DIRECTOR OF STRATEGIC INVESTMENTS AT HIMMEL MERINGOFF PROPERTIES. THE LEGENDARY KALMON DOLGIN, WHO IS THE CO-PRESIDENT OF KALMON DOLGIN AFFILIATES. JOHN RITTER, WHO IS EXECUTIVE VICE PRESIDENT AND PRINCIPAL AT SHOLOM & ZUCKERBROT. AND LAST BUT NOT LEAST, DAN MARKS, WHO I NEVER KNEW CAME FROM BOULDER OF COLORADO, WHO IS A PARTNER AT TerraCRG.>>WHY DO YOU LIKE INDUSTRIAL? WHY? WHY INDUSTRIAL?>>THANK YOU FOR HAVING ME ON THE SHOW. I’VE BEEN WATCHING FOR OVER A DECADE. I REALLY ENJOY IT. INDUSTRIAL IS DEFINITELY A FLAVOR OF THE MONTH. I WOULD AGREE WITH THAT. BUT WE’VE BEEN AROUND FORTY YEARS AND WE’VE OWNED INDUSTRIAL IN QUEENS, FOR EXAMPLE, SINCE THE 1980s. WE’RE IN INDUSTRIAL RIGHT NOW FOR THE LONG HAUL. WE LIKE IT. WE CLOSED A PROPERTY IN THE BRONX LAST MAY. WE LIKE THE SUPPLY, DEMAND AND BALANCE. WE WERE TALKING ABOUT THIS EARLIER. THE DYNAMICS THAT LED TO INDUSTRIAL BEING A GOOD ASSET CLASS ARE REALLY LEANING TOWARD IT BEING A GOOD INVESTMENT IN THE LONG TERM. IN 2003, THE BLOOMBERG ADMINISTRATION REZONED TWO HUNDRED BLOCKS OF INDUSTRIAL TO BECOME REZONED FOR OTHER ASSET CLASSES, MOSTLY RESIDENTIAL. AT THE SAME TIME, YOU’VE GOT RETAILERS TRYING TO CHANGE THEIR SUPPLY CHAINS TO BECOME CLOSER TO THE END USER WHO, IN THE NEW YORK AREA, TENDS TO BE ON AVERAGE MUCH WEALTHIER THAN THE AVERAGE THROUGHOUT THE COUNTRY. RETAILERS WHO WANT TO BE — TO THOSE OF US IN THE TRI STATE AREA. WE LIKE THE NON-E-COMMERCE TENANT TYPE. FOR EXAMPLE, 11% OF RETAIL SALES TODAY ARE ONLY E-COMMERCE. WE WANT TO CATER TO 89% OF THE SUPPLY CHAIN USERS THAT IS ARE NOT E-COMMERCE, FOR EXAMPLE.>>I HAVE THREE INVESTORS WHO HAVE BEEN INVOLVED — YOU’VE BEEN INVOLVED WITH INDUSTRIAL FOR HOW MANY YEARS? BEFORE YOU EVEN –>>IN DECEMBER WE’LL HAVE A FOURTH GENERATION THAT’S BEEN 116 YEARS. >>YOU’VE BEEN INVOLVED WITH INDUSTRIAL FOR 116 YEARS. JOHN. SHOLOM & ZUCKERBROT HAS BEEN AROUND CLOSE TO 50.>>SINCE ’62. I’VE BEEN WITH IT SINCE ’78.>>BUT YOU’VE BEEN INVOLVED. I MEAN AS AN OWNER THERE. WHAT HAVE WE SEEN IN REGARD TO CHANGES IN INDUSTRIAL? ANDREA SAID BEFORE, QUIETLY, YOU KNOW, NOT EVERY PART OF INDUSTRIAL IS INDUSTRIAL. I KNOW YOU’VE SOLD A NUMBER OF PROPERTIES. LET’S TALK ABOUT THAT. >>I THINK YOU START WITH DEFINING WHAT IS INDUSTRIAL. IS INDUSTRIAL MANUFACTURING? IS IT DISTRIBUTION? IS IT LESS MILES AT LOGISTICS? IF WE TALK ABOUT FLAVOR OF THE MONTH LOGISTICS IS DRIVING A LOT OF THE DEMAND RIGHT NOW. I DON’T HAVE THE AMOUNT OF TIME IN THE MARKET AS SOME OF MY COLLEAGUES HERE DO. I CAN TELL YOU IN THE SHORT PERIOD OF TIME I’VE BEEN WORKING IN THE INDUSTRIAL MARKET IN BROOKLYN, SINCE WE ONLY FOCUS ON BROOKLYN — THIS WAS ABOUT EIGHT YEARS AGO. IT WAS INDUSTRIAL WHEN I GOT HERE. IT STARTED TO TURN TO CONVERSIONS. A BUILDING IN RED HOOK NOW HOME TO TESLA AND A NUMBER OF OFFICES. THE CONVERSION WAS STARTING TO HAPPEN. 2017, SITEXT BOUGHT — IN RED HOOK FROM THE ITALIAN COMPANY. NOBODY IN THE MARKET HEARD OF SITEX BEFORE. THEY ARE AN INDUSTRIAL INVESTMENT COMPANY. GETTING UPS. UPS BOUGHT IT FROM THEM FOR THREE TIMES WHAT THEY PAID FOR. 2017 THE MARKET WOKE UP AND REALIZED –>>YOU BROUGHT UP AN INTERESTING COMMENT. WHEN PEOPLE SOMETIMES THINK OF INDUSTRIAL THEY THINK OF INDUSTRIAL TO BE USED FOR STORAGE OR E-COMMERCE IS ANOTHER IDEA. ONE OF THE INDUSTRIAL THINGS WHICH MADE NEW YORK CITY THE WAY IT WAS GOING BACK TO THE BUSH TERMINAL, INDUSTRY CITY, GOING TO THE BROOKLYN NAVY YARD WAS MANUFACTURING. >>WHEN I FIRST CAME IN, WE’D GO TO ANY OF THE BUILDINGS IN WILLIAMSBURG OR GREENPOINT OR EAST NEW YORK OR ANY OF THOSE AND I COULD SEE A POTPOURRI OF EVERY PRODUCT THAT WAS MADE. WE HAD SEWERS, DOUBLE KNITTERS, BABY BUNTING, WOOD WORKERS, SHOE LACE — MY FATHER — GOD BLESS HIM. WE HAD A TENANT THAT LEFT HUNDREDS OF THOUSANDS OF SHOE LACE. HE TOOK THEM HOME AND CREATED THINGS OUT OF THESE THINGS. YOU COULD GO INTO BUILDINGS AND NEVER HAVE TO GO TO A STORE –>>YOU HAVE ONE BUILDING THAT MAKES — WITH REGARD TO WHAT HAPPENED IN NEW YORK CITY, AT ONE TIME WE HAD A GARMENT CENTER WITH INDUSTRIAL. YOU DON’T HAVE GARMENT CENTERS, SEWING THAT MUCH. UNDER THE NEW ZONING THAT CHANGED, SO THEY HAVE TO GO SOMEWHERE ELSE. LOOK AT THE BROOKLYN NAVY YARD. >>THE MANUFACTURING IN NEW YORK HAS DRAMATICALLY CHANGED, HAS MOVED TO CHINA. MANUFACTURING IS THE DIFFERENT TYPE OF INDUSTRY. THE MOVIE INDUSTRY IS MANUFACTURING. YOU PUT PEOPLE TOGETHER AND CREATE A PROJECT. >>YOUR OFFICE IS IN — STUDIOS. >>THE SUPPORT INDUSTRY SURROUNDING ENTERTAINMENT INDUSTRIES REQUIRE A LOT OF SPACE. TV AND MOVIE PEOPLE LIKE TO PUT THE MONEY ON THE SCREEN BUT YOU HAVE THE PROPS, THE SETS, DESIGNERS. >>AND YOU NEED THE — HERE’S THE QUESTION. WHEN YOU’RE TALKING ABOUT MOVIE INDUSTRY AND INDUSTRIAL — WHERE ARE THESE PEOPLE PUTTING THEIR TRUCKS? THAT’S THE BIGGEST PROBLEM. WE’RE LANDLOCKED. WE’RE NOT BUILDING BATTERY PARK CITY ANYMORE. WE CAN BUILD ON THE WATER OVER THERE. >>THOSE RENTS HAVE GONE UP A LOT, TOO. >>WE HAD A TENANT OF OURS ON A BUILDING ON SUTTON IN BROOKLYN. THEY PUT IN A LOT OF MONEY INTO AN ART DISPLAY, ART STUDIOS AND AN EVENT CENTER. THEY HAD TO GO OUT, I THINK THE REASON THEY PURCHASED THE BUILDING OF ABOUT 20,000 SQUARE FEET AND PAID TOP, TOP DOLLAR. A COUPLE OF BLOCKS JUST TO HAVE PARKING FOR NOW. >>LET’S TALK ABOUT WHAT HAPPENED YEARS AGO WITH THE SWINGLINE BUILDING, WHAT YOU DID ON THAT. >>IT WAS A TRADITIONAL MANUFACTURING BUILDING AND WE BROKE IT UP INTO SMALLER UNITS. WE BROKE IT UP INTO A NUMBER OF SMALLER UNITS AND WE CONTINUE TO HAVE INDUSTRIAL COMPANIES. I THINK WE HAVE JUST ABOUT THE LAST PRINTER IN NEW YORK IN THAT BUILDING. >>WHAT’S YOUR THOUGHTS WITH REGARD TO INDUSTRIAL CONVERSION TO OFFICE TODAY? ARE WE SEEING A LOT OF PEOPLE BULLISH ON THAT OR DOES THAT SEEM TO OUT OF FAVOR THESE DAYS?>>IT’S SOMEWHAT OUT OF FAVOR. I CAN SPEAK TO THE BROOKLYN MARKET. THERE’S OFFICE INVENTORY THAT COME ONLINE THAT STILL NEEDS TO BE LEASED. SOME PRODUCT THAT STILL BEING BUILT THAT’S GOING TO COME ONLINE. PEOPLE COOLED OFF ON TAKING INDUSTRIAL BUILDINGS AND FIGURING OUT HOW TO CONVERT THEM FOR ALTERNATE USES. BIGGER BUILDINGS ARE SOUGHT AFTER BY BIG INSTITUTIONAL TYPE INVESTORS, BIG FAMILY OFFICES. SMALLER BUILDINGS THOUGH, WE JUST SOLD ONE YESTERDAY ON GREEN STREET. 15,000 SQUARE FEET, A DRY WALLING COMPANY. THERE ARE PLENTY OF OWNER USERS, SMALL MANUFACTURING TYPE BUSINESSES, SERVICE BUSINESSES THAT’S VERY MUCH IN DEMAND. >>A GOOD EXAMPLE — A NUMBER OF YEARS AGO, I RECOMMENDED MY FRIEND WHO WAS IN THE WINDOW REPAIR BUSINESS. — ARCHITECTURAL WINDOWS. HE DIDN’T NEED THIS BUILDING. HE SOLD THE BUILDING — — 283 GREEN — TO AN INDIVIDUAL BUILDING RESIDENTIAL OVER THERE. THE REZONING THERE AND HE MOVED UP TO THE BRONX AND MADE THE MONEY ON THE PROPERTY. >>WE STILL FOUND THAT INDUSTRIAL BUILDINGS BEING CONVERTED HAVE BEEN VERY SUCCESSFUL. WE ARE, IN FACT, DOING ONE OF OUR OWN BUILDINGS NOW. A WOOD WORKER’S LEASE WAS UP AND WE ARE PUTTING A MICRO BREWERY INTO THE GROUND FLOOR FOR 10- 12,000 SQUARE FEET.>>THAT’S A DIFFERENT TYPE OF USE. NOW YOU’RE TALKING ABOUT TAKING THE INDUSTRIAL AND MAKING IT SOME RETAIL. >>NO. BUT THE UPPER FLOORS ARE GOING TO BE DONE AS ALTERNATE USES. >>THE DIFFERENCE IS THE BASIS THAT KAL HAS ON HIS PROPERTY. >>RELATED TO WHAT KAL SAID — THERE WAS IN THE WINE COUNTRY OF — NEAR RIVER HEAD. A PLUMBING SUPPLY COMPANY WHO HAD A 45 OR 50,000 SQUARE FOOT ONE STORY INDUSTRIAL. THEY MADE THAT INTO A CIDER PLANT AND MEETING PLACE AND VENUE PLACE. YOU WERE SAYING ANDREA?>>IN 2017, WE BOUGHT 125,000 SQUARE FOOT BUILDING IN LONG ISLAND CITY THAT IS SIX STORIES. WE HAD THE VIEW WE COULD MAKE IT FROM A FLEX INDUSTRIAL PROPERTY TO A TAMMY BUILDING. INVESTED SOME CAPITOL IN IT. WE PAID 190 A FOOT FOR IT. HAD A GRAND VIEW FOR TAMMY AND THERE IS NO TAMMY MARKET IN LONG ISLAND CITY IS WHAT WE DISCOVERED. IT HAD A GUITAR MAKER, STORAGE TENANTS. WE’VE DONE GREAT IN LEASING IT. WE HAVE A LITTLE SPACE TO LEASE IF ANYONE IS INTERESTED. >>WE HAVE A COUPLE OF BROKERS.>>I KNOW — WE’RE STILL COMMENDING THE RENTS THAT THE MARKET IS CORDING ITSELF AT BUT IT’S NOT A TAMMY MARKET. IT’S MORE OF A FLEX STORAGE SORT OF MARKET. >>THE ASPECT OF THAT IS WHEN IT COMES TO THE INDUSTRIAL, BREAKING INTO SMALLER INDUSTRIAL UNITS DERIVES AS MUCH RENT AS SOME OF THESE USERS. IT’S A LOT LESS COST TO CONVERT IT WITH THE AIR-CONDITIONING AND THE WALLS AND DROP CEILING. FOR INDUSTRIAL YOU HAVE TO ADD SOME WALLS AND YOU HAVE COMMON BATHROOM FOR THE SAME NUMBERS. THE PROFIT LEVEL IS MUCH HIGHER AND IT CERTAINLY SOLVES THE INDUSTRIAL MARKET. NOTHING IS GOING TO SOLVE THE LOSS OF INDUSTRIAL SPACE. WE’VE LOST OVER 20% OF OUR INDUSTRIAL SPACE AND IN LAST 20 YEARS. THAT’S DRIVING RENTS UP. IT’S GREAT IF YOU CAN DEVELOP NEW BUILDINGS LIKE MANUFACTURING ON THE GROUND FLOOR AND RESIDENTIAL ABOVE. >>DO YOU SEE POTENTIALLY A REZONING WITH THE MIXED USE?>>I WOULD LOVE IT. I DON’T SEE THAT ON THE HORIZON.>>I DON’T THINK SO. IN OUR CONVERSATION WITH CITY PLANNING IT’S HARD TO BLEND THOSE USES. FAMILIES WALKING AROUND WITH STROLLERS WITH TRUCKS GOING IN AND OUT OF BUILDINGS IS HARD THING TO PLAN AROUND. THEY ARE TRYING TO DO REZONING OR DISCUSSING REZONING IN NORTH BROOKLYN FROM GREENPOINT BASICALLY TO BUSHWICK. KEEPING IT COMMERCIAL BUT ALLOWING HIGHER DENSITY BUILDING, LESS OR NO PARKING REQUIREMENT, WHICH SHOULD BE ABLE TO HELP PEOPLE –>>I THINK THE PARKING REQUIREMENT IS A DIFFICULT ENDEAVOR WHICH HAS AN AFFECT ON THE INDUSTRIAL WORLD. >>IT’S PROHIBITIVE TO DEVELOP NEW SQUARE FOOTAGE BECAUSE OF THE PARKING REQUIREMENT.>>ANDREA TALK ABOUT THE PROPERTY YOU BOUGHT IN PARKCHESTER.>>LAST MAY WE CLOSED A $90 MILLION PURCHASE OF A 7 AND A HALF ACRE SITE IN PARKCHESTER. IT HAS A 300,000 SQUARE FOOT BUILDING ON IT OF WHICH, 200,000 IS WAREHOUSE. THE REMAINDER IS OFFICE ON THE SECOND FLOOR WITH A LITTLE RETAIL. WE ARE REALLY EXCITED ABOUT IT, BECAUSE IT’S GOT GREAT BONES. GREAT LOADING DOCK RATIO. 40 LOADING DOCKS, GREAT CEILING HEIGHTS, CALM SPACING. WE DID A LOT OF RESEARCH ON THE INDUSTRIAL MARKET BEFORE GOING INTO THIS. WE SAID WHAT IS ATTRACTIVE TO THE END USER? YOU KNOW, THEY CARE A LOT ABOUT EGRESS AND INGRESS. 53-FOOT TRAILERS. THEY CARE A LOT ABOUT HOW THEY GET FROM THE HIGHWAY TO THE LOADING DOCK. WE DID TRAFFIC STUDIES, FOR EXAMPLE. WE STUDIED THE END USER OF THE MARKET. HOW DO THEY GET THERE FROM THE PORT? AND THE VANS, THE PARKING. SO, IT HAS 200 PARKING SPOTS. WE LIKE THAT IT HAD IN PLACE RENTS OF $6 A FOOT. A BASIC MARKET TO MARKET STORY. IT WAS AN OFF-MARKET DEAL. IT TOOK A LONG TIME TO CLOSE, BECAUSE WE HAD TO GET — APPROVAL, A BIG EQUITY CHECK, WHICH PLAYED TO OUR STRENGTHS BECAUSE WE NEEDED A LOT OF CASH AND WENT IN WITH A GREAT PARTNER. >>HOW INTERESTED WERE LENDERS TO FINANCE THIS PROPERTY?>>WE HAD TO ASSUME AND PLACE CMBS LOAN THAT WAS SMALL BECAUSE THERE WASN’T THAT MUCH INCOME IN PLACE. WE WENT IN WITH A LOW CAP RATE. WE ASSUMED A SMALL LOAN THE SELLER HAD JUST ISSUED.>>WOULD YOU BUILD A NEW INDUSTRIAL PROPERTY?>>IF I HAD A USER AND ADHERED TO LOCATION, LOCATION, LOCATION — YEAH. IT WOULD HAVE TO BE UNDER THOSE CIRCUMSTANCES. >>WE NEGOTIATED A DEAL THAT DIDN’T GET MADE FOR A LARGE CHAIN OF MOVIE/TV PRODUCTION ORGANIZATION. THEY NEEDED A SPECIALIZED BUILDING. THEY NEEDED 45-FOOT CEILING HEIGHTS, 120-FOOT DEPTH, PARKING, AIR-CONDITIONING, SOUNDPROOFING. THEY WERE WILLING TO PAY $45 A SQUARE FOOT. >>WHAT WAS THE T-I FOR THAT?>>I DON’T KNOW. IT MAKES SENSE BECAUSE THEY HAD THE CREDIT. THE RISK LEVEL IS LOW. ALSO BUILDING FOR A FEDEX OR UPS OR AMAZON. IT MAKES SENSE. THEY NEED 30-FOOT CEILING HEIGHT. >>NETFLIX IS A GOOD EXAMPLE. ON JOHNSON AVENUE — IT’S A BUILDING THAT IS BASICALLY NEEDS TO BE KNOCKED DOWN. THEY ARE GOING TO BUILD TO –>>THEY ARE BUYING THE LAND.>>$65 A FOOT IN RENT. >>THEY HAVE A GOOD TENANT. THEY HAVE A LEASE OVER THERE. THIS IS GOING TO MAKE THE DIFFERENCE. >>BUT EVERYBODY ELSE IS LOOKING, IF THE BUILDING HAS A GOOD LAND COMPONENT IT IS THE MOST IN DEMAND RIGHT NOW. >>WE WERE TALKING BEFORE IN THE GREEN ROOM WITH REGARD TO SOME OF THE PEOPLE PLANNING TO GO TO THE MULTI-LEVEL. HOW DIFFICULT DO YOU THINK IT IS TO BUILD MULTI-LEVEL INDUSTRIAL TODAY? YOU KNOW ESPECIALLY LIKE ANDREA WAS SAYING THE 53-FOOT TRUCKS AND THE WEIGHT OF THESE TRUCK WITH MERCHANDISE IN THEM, MAKES IT REALLY DIFFICULT. >>I CAN TELL YOU THIS FROM A MARKETABILITY STANDPOINT. YOU NEED AT LEAST FOUR ACRES TO BE ABLE TO DESIGN AND MASS THE BUILDINGS AND THE RAMPS TO MAKE IT WORK. YOU CAN TALK ABOUT THEM BUILDING. >>THE OTHER PART IS IF THE 30-FOOT CEILING HEIGHTS REQUIRED FOR THE COMPUTERIZED DELIVERY SYSTEMS AND YOU NEED AN M3 ZONE BECAUSE THAT ALLOWS THE 60-FOOT CEILING HEIGHT — THERE ARE FEW PROPERTIES ON THE MARKET OR THAT CAN BE DERIVED WITH FOUR ACRES THAT MAKE SENSE FOR THAT. >>I THINK THERE WAS A STUDY A YEAR OR TWO AGO. THEY WERE USING A BUILDING THEY BUILT OUT IN ONE OF THE MID WESTERN STATES AND TRYING TO SUPERIMPOSE THAT HERE AND THEY HAD A HELL OF A TIME TRYING TO FIND LOCATION THAT WOULD ACCOMMODATE IT. THE COST JUST DIDN’T MAKE SENSE.>>HERE’S A POINT OF VIEW, WE’RE TALKING ABOUT LOCATION AND AVAILABILITY. THERE IS SPACE AVAILABLE TODAY IN CONEY ISLAND. THERE’S SPACE AVAILABLE IN EAST NEW YORK. THERE IS SPACE NEAR AQUEDUCT RACETRACK. EAST NEW YORK IS IN YOUR MARKET PLACE WHERE YOU SPECIALIZE. YOU KNOW THIS. BUT YOUR ACCESS TO THE BELT PARKWAY. >>NO TRUCKS ON THE BELT PARKWAY. THOSE ARE FARAWAY AND IF ONE WANTS TO DELIVER TO MANHATTAN IT’S TOO FAR. IF ONE IS GOING TO DELIVER TO CENTRAL BROOKLYN, IT MAKES SENSE. IT COULD WORK. >>AMAZON, I BELIEVE, WAS BUILDING AN INDUSTRIAL FACILITY IN STATEN ISLAND. THERE’S SPACE IN STATEN ISLAND. VERRAZZANO — YOU CAN GET ON THE BRIDGE BUT THE BIGGEST QUESTION IS THE TIME COMPONENT OF GETTING FROM STATEN ISLAND TO ANYWHERE AND MAYBE THE COST ELEMENT THERE. >>ALSO A LOT OF ENVIRONMENTAL ISSUES IN STATEN ISLAND.>>A LOT. >>I FORGOT THE NAME OF THE DEVELOPER, BUILT A BEAUTIFUL FACILITY. 30-FOOT CEILING HEIGHT. THREE QUARTERS OF A MILLION SQUARE FEET, TONS OF DOCKS. IT’S MORE LIKE A REGIONAL DISTRIBUTION CENTER BUT DELIVERY COMPANIES I’VE DEALT WITH AND TALK TO THEY WANT TO BE ABLE TO MAKE FIVE OR SIX TRIPS FROM THE WAREHOUSE TO THE ACTUALLY POINT OF DELIVERY OF THE BUYER IN A DAY. IF YOU HAVE TO COME FROM STATEN ISLAND OR NEW JERSEY THE COAST OF TOLLS IS UNIMPORTANT. THE COST OF GOING BACK AND FORTH IS –>>I DID A SHOW A COUPLE OF MONTHS AGO AND HAD TWO SUPERMARKET OWNERS. BASICALLY THEY WERE SAYING THE COST OF OPERATION ON THE FOOD COSTS INCREASES BECAUSE EVERY TIME THEY ARE THERE THEY GET A TRAFFIC TICKET. [LAUGHING]>>IT’S SIGNIFICANT.>>THE TRUCK GETS A TRAFFIC TICKET BECAUSE THEY ARE UNLOADING. THE QUESTION IS ARE YOU GOING TO DO UNLOADING AT A CERTAIN HOUR OF THE DAY? YOU TAKE TODAY WITH AMAZON PRIME AND AMAZON ONE-HOUR SERVICE, HOW DO YOU GET IT FROM ONE PLACE TO THE OTHER? THE OLD — BUILDING IS A WAREHOUSE TODAY IN REALITY. NOT THE MOST OPPORTUNE BUT IT’S A PLACE. >>AMAZON, I THINK SPENDS ALMOST $40 BILLION A YEAR ON SHIPPING. THAT’S THE ANNUAL EXPENSE AND ANOTHER $40 BILLION ON FULFILLMENT COSTS. IT LOSES MONEY NET ON SHIPPING. IT’S DEFINITELY A MAJOR COST THEY THINK ABOUT AND TRYING TO REDUCE BY GETTING CLOSER TO THE END USER. THAT’S ONE EXAMPLE. REAL ESTATE IS WHAT I’LL TALK ABOUT, A SMALL PERCENT OF COST RELATIVE TO THE LOGISTICS COSTS OF A COMPANY IN TERMS OF RELATIVE TO SUPPLY CHAINS. THAT’S WHY EVERYONE SAYS LET’S JUST RAISE THE REAL ESTATE COSTS RELATIVE TO THE TRANSPORTATION COSTS.>>YOU CAN ONLY PASS ON A CERTAIN PRICE TO THE CONSUMER. THERE’S A LEVEL THAT YOU REACH. THE SAME IDEA IN THE INVESTMENT SALES. SOMEBODY MAY SAY THEY WANT THIS TYPE OF PRICE BUT THE NUMBERS DON’T WORK AS YOU WERE TRYING TO SAY YEARS AGO WHEN YOU SAT WITH YOUR FATHER ON PRICING. PEOPLE HAVE TO LOOK AT THE NUMBERS. CERTAIN PEOPLE WHO ARE TAKING INDUSTRIAL SPACE AND THEN CONVERTING IT TO OFFICE SPACE AND THOUGHT THEY WERE GOING TO GET 40-45 DOLLARS A FOOT HAVE HAD THE WAKENING THIS ISN’T HAPPENING TODAY. THAT’S WHAT’S REALLY HAPPENING. I SEE, PERHAPS, A CONVERSION THE OPPOSITE WAY. I SEE THE CONVERSION TAKING THE SPACE, WHICH WAS CONVERTED TO OFFICE, GOING BACK TO INDUSTRIAL. THAT’S THE BEST USE THERE. HAVE YOU SEEN THAT?>>NOT YET. I THINK PEOPLE WHO HAVE DONE CONVERSIONS ARE STILL HOLDING OUT HOPE THAT THEY’RE GOING TO BE ABLE TO ATTRACT. SOMETIMES IF THEY REPROGRAM THOSE BUILDINGS TO SMALLER OFFICE USES –>>I’LL GIVE YOU A GOOD EXAMPLE. BEFORE COSTCO OPENED IN MANHATTAN. PEOPLE WOULD GO TO COSTCO ON LONG ISLAND CITY, WHICH WAS THE OLD INDUSTRIAL WAREHOUSE. AT THAT TIME, COSTCO COULD AFFORD TO TAKE A SPACE WHERE THE PARKING. TODAY THAT IS PRIME PROPERTY. THAT PROPERTY, I BELIEVE IT MAY BE UNDER REZONING. BUT YOU COULD DO SOME OTHER TYPE OF PURPOSE. YOU DON’T HAVE TO HAVE RETAIL. PEOPLE HAVE TO LOOK AT IT IN DIFFERENT WAYS. >>METROPOLITAN MALL IS ONE PROPERTY IN WHICH IT WAS FURNITURE COMPANIES THAT HAD MAJOR OUTLET. THEY WERE OFFERING IT UP FOR INDUSTRIAL USE. I’VE HEARD THEY ARE CLOSE TO DEALS. FOR HALF, THREE QUARTERS A BILLION SQUARE FEET FOR INDUSTRIAL USE. >>I THINK YOU HAVE TO BE SENSITIVE WHEN YOU CALL OFFICE AS POTENTIALLY ABLE TO BE CONVERTED TO INDUSTRIAL. YOU HAVE TO BE SENSITIVE TO WHAT OFFICE LOOKS LIKE RELATIVE TO WHAT INDUSTRIAL USERS NEED. FOR EXAMPLE, WE’RE LOOKING IN SUNSET PARK AT SOME PROPERTIES AND WE THOUGHT, THIS MUST BE COMPETITIVE WITH THE BROOKLYN NAVY TERMINAL. THERE’S AN OVERSUPPLY. BUT BROOKLYN NAVY TERMINAL — THE COLUMNS ARE EXTREMELY CLOSE TOGETHER, THE CEILINGS ARE LOW. THAT’S OFFICE SPACE EVEN ON THE GROUND FLOOR. YOU CAN’T FIT ANY WAREHOUSING TYPE OF TENANT IN THERE. THEY NEED BETTER LOADING, MORE WIDE COLUMN SPACING AND HIGHER CEILINGS. THAT’S NOT EVER GOING TO BE INDUSTRIAL PRODUCT. >>WHEN WE TALK INDUSTRIAL AND YOU’RE TALKING ABOUT WAREHOUSING. I’M STILL THINKING ABOUT INDUSTRIAL AS MANUFACTURING, WHICH I THINK IS BASICALLY NOT HAPPENING HERE RIGHT NOW. >>I DID A SHOW IN THE NAVY YARD AND ON INDUSTRY CITY. PEOPLE LIKE THE SYNERGY MADE IN NEW YORK. ITEMS MADE IN NEW YORK, FOOD ITEMS, CLOTHING ITEMS ARE THE PRODUCTS GETTING A GREAT PITCH TODAY. >>THAT’S WHY I WAS ABOUT TO SAY SOME OF THE SMALL DIVISIONS GOING TO THE BUSH TERMINAL AND NAVY YARD WHERE THEY HAVE THE SMALLER IT FIRMS. THEY HAVE SMALL FURNITURE SHOPS, SMALL CLOTHING SHOPS. THAT’S STARTING TO BE A VERY PROMINENT INDUSTRY NOW. >>AS I LOOK IN MY CRYSTAL APPLE TO SEE IF IT’S BRIGHT. IT’S VERY BRIGHT. IT’S VERY SHINY ESPECIALLY FOR INDUSTRIAL IN ALL ASPECTS OF INDUSTRIAL. WE DON’T HAVE ENOUGH INDUSTRIAL FOR MANUFACTURING. RIGHT NOW WE DON’T HAVE ENOUGH INDUSTRIAL FOR E-COMMERCE. THE BIGGEST PROBLEM IS WE DON’T HAVE LAND TO BUILD MORE INDUSTRIAL. BUT I’D LIKE TO THANK ANDREA, KAL, JOHN AND DAN AND SEE YOU NEXT WEEK. ♪ [THEME MUSIC] ♪

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