Federal Reserve Bank on the current recovery…the good and the bad.

Last week I attended an SIOR event that featured a speaker from Federal Reserve Bank of Chicago, here are my notes.

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Recovery from 2009 has not been as strong as past recessions. Why?
1. Hesitant growth since 2009
2. Spike in financial stress. Tight lending principals. Now stress is low.
Solutions:
1. Fed has kept Fed Fund target rate close to zero. Fed raised rate 50 basis points in Dec 2015
2. Quantitative easing. Buying securities, fed holds over $4T.
Impacts:
1. Food below inflation
2. Energy (oil) price are low.
3. Long term unemployed (more than 6 months) is at its highest historical level, but it is going down. One example would be people who want to work full time only working part time.
4. Labor force participation is low, but getting better. One reason may be wages have not increased.
5. Broad based recovery. Auto and auto parts/components. Fed sees a 2.4% manufacturing increase in 2017.
6. Dollar has been increasing. Good for US consumer detrimental for exports/manufacturing.
Next:
1. Inflation is beginning to increase +\-2%.
2. Employment has been steady, but not growing too much.
3. IL. Unemployment is creeping up (bad).
4. Housing starts are increasing steadily over 1M per year.
5. Interest rates are staying low.

SIOR leaders discuss boutique commercial real estate firms

Boutiques Resilient in Face of M&As

By John Salustri | Globe Street

CHICAGO—The spate of multinational service providers gobbling up—or being gobbled up by—other multinational service providers leaves one to wonder what the smaller boutiques, the moms-and-pops of the industry, are thinking. Members of the Independent Brokers Group of the Society of Industrial and Office Realtors aren’t flinching.

Thornburgh: “There will always be a substantial place in the market for the highly skilled boutique and regional firms.”  It was an appropriate time to chat with the folks of SIOR (a GlobeSt.com Thought Leader), given that the association’s Fall World Conference is set to kick-off here on October 8. And while the consolidation trend does tip the scales of competition toward the big boys, there’s plenty to be gained from the boutiques.

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“The larger firms can control the market, setting rental rates and term structure,” says Jason M. Crimmins, CCIM, SIOR, president of the Short Hills, NJ-based Blau & Berg Co. “But there are corporate users who recognize the value and local expertise that independent firms have to offer. As an independent, we bring not only our local proficiency but every other SIOR independent’s local expertise.”

That’s where the IBG comes in, he says. “The IBG has been crucial in uniting our firms, and helping us display our local market expertise while providing a global network of SIOR professionals.” In essence, he says, the IBG gives otherwise regionally restricted firms an unprecedented national reach.

Robert G. Thornburgh, SIOR, CCIM, CPM, president and CEO of Heger Industrial in Long Beach, CA, is equally philosophical about the rise of the M&A trend—and the strength of the independent broker in the face of that trend. “All businesses, large or small, are continually searching for efficiencies and developing ambitious growth plans,” he observes. “A vibrant company closely examines procedures; systems; and inevitably, its people.” As a result, he adds, there should be no surprise that consolidations are taking place. “It’s a natural part of this process.”

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Crimmins: “Relationships can become a factor only when results are provided.” But that activity doesn’t change the role of “the skilled, independent niche operator. Consolidation and recent growth are certainly in part being fueled by larger corporate clients who are opting for the efficiency of a single provider,” says Thornburgh, who is director of SIOR’s Western region. “However, there will always be a substantial place in the market for the highly skilled boutique and regional firms that continually place a premium on relationships and delivering a higher level of service.”

Crimmins notes, however, that smaller firms still have to focus on the basics. “Relationships become a factor only when results are provided,” he says. “All clients ultimately focus on the bottom line. Given the proper platform to distinguish broker from broker, they would ultimately choose performance over relationships.” In the smaller firm he believes, clients are most likely to get both.

It’s the nature of the market that the mega-mergers will continue. It’s the nature of the smaller shops, to simply keep on keepin’ on, to keep their eye on that performance and those relationships. “As an independent boutique company,” says Crimmins, “all we can do is continue to make deals, develop stronger relationships with our clients and continue to get our name out there.”

Click here for link to Globe Street Article

http://www.globest.com/blogs/sior/sior/Boutiques-Resilient-in-Face-of-M-360498-1.html

Do you expect to overpay on your lease?

US companies occupying industrial real estate, listen up!   The market has pivoted to a Landlord’s market, that means you will pay more.   Taking on this market without proper representation, well why not just tie a steak around your neck and walk into a Lion’s den…you’re dead meat.

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Chicago stats:

Unemployment is down to 6.2%

Vacancy rate has decreased to 8.2%, lowest since 2001!

15 million square feet is under construction!

This data tells us there are more people employed, the amount of available space is lowest since 2001, and developers can’t build enough space to meet demand (or to feed their performas).  What does it all mean? Asking prices are up and incentives are down like free rent, large tenant improvement dollars, and risk diversion, you are in a Landlord’s market… expect to pay more.

But you don’t have to.  Embrace the approach of creating a competitive atmosphere where multiple buildings are being seriously considered you should be able to compress the rental rate and get some concessions from Landlords. Consider the vacancy rate of 8.2% it reflects nearly 90 million square feet of available space in Chicago metro!

If you have a renewal or are considering a new location:

  • Engage a real estate professional who has access to on and off market properties
  • Go see everything. You may not have 10 options, but there should be three or four and you need to leverage them.
  • Give yourself time, 9-12 months before your back is against the wall.

This is nothing new, but its never been more important.

Data indicates strong activity in industrial real estate market

From CoStar’s 2014 Mid-Year Report.
The Chicago Industrial market ended the second quarter
2014 with a vacancy rate of 8.5%. The vacancy rate was
down over the previous quarter, with net absorption
totaling positive 2,303,618 square feet in the second quarter.
Vacant sublease space increased in the quarter, ending the
quarter at 1,416,465 square feet. Rental rates ended the second
quarter at $5.23, an increase over the previous quarter. A
total of five buildings delivered to the market in the quarter
totaling 1,708,735 square feet, with 7,721,186 square feet still
under construction at the end of the quarter.
Absorption
Net absorption for the overall Chicago Industrial market
was positive 2,303,618 square feet in the second quarter 2014.
That compares to positive 327,193 square feet in the first quarter
2014, positive 6,177,633 square feet in the fourth quarter
2013, and positive 1,375,931 square feet in the third quarter
2013

.ship data
Tenants moving out of large blocks of space in 2014
include: Quantum Foods, LLC moving out of (269,591) square
feet at 550 W North Frontage Rd, Silgan Containers moving
out of (187,850) square feet at 1191 Lake Ave and Channel
Distribution moving out of (165,762) square feet at CMD
Business Park.
Tenants moving into large blocks of space in 2014 include:
Pactiv Corporation moving into 898,560 square feet at
Pinnacle Business Center, Ferrara Candy Company moving into
747,152 square feet at Carlow Corporate Center, and Midwest
Warehouse & Distribution System moving into 650,494 square
feet at Carlow Corporate Center.
The Flex building market recorded net absorption of positive
84,263 square feet in the second quarter 2014, compared
to positive 287,109 square feet in the first quarter 2014, positive
54,574 in the fourth quarter 2013, and positive 212,314 in the
third quarter 2013.
The Warehouse building market recorded net absorption
of positive 2,219,355 square feet in the second quarter 2014
compared to positive 40,084 square feet in the first quarter
2014, positive 6,123,059 in the fourth quarter 2013, and positive
1,163,617 in the third quarter 2013.
Vacancy
The Industrial vacancy rate in the Chicago market area
decreased to 8.5% at the end of the second quarter 2014. The
vacancy rate was 8.7% at the end of the first quarter 2014,
8.7% at the end of the fourth quarter 2013, and 9.0% at the
end of the third quarter 2013.
Flex projects reported a vacancy rate of 12.1% at the end
of the second quarter 2014, 11.9% at the end of the first quarter
2014, 12.3% at the end of the fourth quarter 2013, and 12.4% at
the end of the third quarter 2013.
Warehouse projects reported a vacancy rate of 8.3% at
the end of the second quarter 2014, 8.5% at the end of first
quarter 2014, 8.4% at the end of the fourth quarter 2013, and
8.8% at the end of the third quarter 2013.Rental Rates
The average quoted asking rental rate for available
Industrial space was $5.23 per square foot per year at the end
of the second quarter 2014 in the Chicago market area. This
represented a 1.0% increase in quoted rental rates from the
end of the first quarter 2014, when rents were reported at $5.18
per square foot.
Rental rates
The average quoted rate within the Flex sector was $10.31
per square foot at the end of the second quarter 2014, while
Warehouse rates stood at $4.91. At the end of the first quarter
2014, Flex rates were $10.33 per square foot, and Warehouse
rates were $4.87.accounting for 276,031,840 square feet of Industrial
space.
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Sales Activity
Tallying industrial building sales of 15,000 square feet
or larger, Chicago industrial sales figures fell during the first
quarter 2014 in terms of dollar volume compared to the fourth
quarter of 2013.
In the first quarter, 91 industrial transactions closed
with a total volume of $539,789,301. The 91 buildings totaled
13,210,857 square feet and the average price per square foot
equated to $40.86 per square foot. That compares to 154
transactions totaling $637,990,562 in the fourth quarter. The
total square footage was 15,821,506 for an average price per
square foot of $40.32.
Total year-to-date industrial building sales activity in 2014
is up compared to the previous year. In the first three months
of 2014, the market saw 91 industrial sales transactions with
a total volume of $539,789,301. The price per square foot has
averaged $40.86 this year. In the first three months of 2013,
the market posted 85 transactions with a total volume of
$232,203,922. The price per square foot averaged $31.84.
Cap rates have been lower in 2014, averaging 7.37%,
compared to the first three months of last year when they
averaged 8.56%.

Big delays due to I-55 construction @ Arsenal Road, to be completed by Labor Day.

Experienced a significant traffic back-up approaching Arsenal Rd on I-55 in Joliet.  Work on the bridge spanning the Des Plaines River has traffic down to one lane (!!!!) in both directions, see pictures in this post.

Received this update from IDOT:

The work being performed to the structures carrying I-55 over the Des Plaines River in Will County includes repairing the structural steel, patching and resurfacing the bridge decks and cleaning and painting the structures. In 2013 work was done on the southbound structures. This year (2014) work is being performed on the northbound structures. The work is expected to be completed by late August (before the Labor Day holiday). The Illinois Department of Transportation appreciates your patience as we work to repair these 60+ year old structures.

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Culture drives revenue, right?

employees-meeting-1940x900_29876Your Company Culture Can Survive Your Wild Business Success BY 

A positive company culture is often the first casualty of a fast-growing business. Culture expert Paul Spiegelman shares some tips for creating a culture that will grow along with your company.

It’s a common problem facing many fast-growing businesses: How do you maintain the great company culture you had as a young start-up when your company is scaling so rapidly?

Speaking at this year’s Inc. 500|5000 conference, Paul Spiegelman, co-founder of the Inc. Small Giants Community, offered up some insights to that question. It’s a topic he has experience with. Spiegelman grew his business, the Beryl Companies, from three people to 400. After selling it last year to Stericycle, a large public company, Spiegelman stayed on as Chief Culture Officer to tackle the challenge of bringing a positive culture to Stericycle’s more than 14,000 employees. Here are some of the tips he gave attendees on making culture something that can grow along with your business.

1. Make company culture a priority. “Scaling culture is the last thing you’ll have to worry about if you make it the first thing you care about,” says Spiegelman. He suggests instituting a system of processes that makes culture a priority, which will grow naturally with your business as it expands. “No matter what stage you are at, culture needs to be a priority in your business,” says Spiegelman. “It isn’t easy, but there is nothing more fulfilling seeing the impact it makes on the lives of your people.”

2. Never compromise your values. At the heart of any company culture is a core set of values which should never change says Spiegelman. “Use those core values to lead your vision every day. Regardless of whatever other changes your company may face, those values need to remain unchanged.”

3. Don’t tolerate people who aren’t committed. Or, as Spiegelman less delicately puts it, “Get rid of the whiners, losers, and jerks.” Team members that don’t fit into the group can be toxic to a positive culture, so don’t hesistate to get rid of them. “You need to tell your team, ‘We  are on a mission. If you don’t want to be part of that mission, you should go work somewhere else.'” He stressed that once you have made the decision to make culture a priority, then you should have no tolerance for team members who go against that decision.

4. Hire for fit, not skills. There will always be people out there with the skills capable of doing the job. So Spiegelman suggests hiring people that, first and foremost, would work well in your organization. It may take a little longer, but it will pay off in the long term.

The benefits of establishing a strong company culture go beyond just happy employees. Spiegelman stresses that there is a strong correlation between the well-being of your employees and the success of your business. “Happy employees lead to satisfied customers who will want to become loyal customers,” he says. “It all feeds back to the growth and success of your business.”

Link to: Your Company Culture Can Survive Your Wild Business Success | Inc. 5000

Where are all the eCommerce deals?

ECommerce Drives Demand for New Industrial SpaceServeAttachment-3.ashx

We continue to hear about the big box eCommerce deals (defined in artcle as larger than 400,000 SF) …but besides Amazon and a series of deals in Southern California where are the deals?.  Of course Amazon is significant, but what about the other retailers?  I suspect there is more repurposing of buildings as there are new facilities.  Of course 3PLs and freight forwarders are going to continue to provide service to e-Commerce in the shadows or without the spotlight by the very nature of how they operate. Big Box deals continue to be executed, but e-Commerce is one of many drivers including increased consumer demand, supply chain realignment, reshoring, and pent up growth from years of stagnation or uncertainty.