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SHOW NOTES FOR EPISODE 507: WHY IS INDUSTRIAL REAL ESTATE IS SO HOT RIGHT NOW?
Covid hit commercial real estate pretty hard in 2020-2021, however, some asset classes not only faired well but thrived as a result of the pandemic. One of these asset classes is Industrial Real Estate. In today’s podcast Industrial Commercial broker Michael Hernandez explains why Industrial is thriving and how you can get involved.
What You Will Learn
- Why Industrial Commercial Real Estate is so hot
About Our Guest
Michael Hernandez
Michael Hernandez works as a commercial real estate broker in Los Angeles with Lee and Associates, one of the nation’s largest agent-owned commercial real estate firms. Michael specializes in multi-tenant and single-tenant industrial properties and land. He advises clients with in-depth market knowledge and strategies to achieve their real estate needs, including expansion, consolidation, disposition, and exchange. Within the first six months of starting his business, Michael closed a transaction that resulted in a $12 million industrial deal. Michael lives in Cypress, CA, with his wife and three children. They enjoy bike riding at the many beautiful beaches Southern California has to offer.
More About Michael
- He grew up in the San Francisco Bay area
- He attended UC Davis on a baseball scholarship
- Studied Psychology and Communications
- Had a few sales and administrative jobs
- Moved to Southern California 4 years ago
- Prior to commercial real estate, Michael was in the construction industry, doing doing commercial HVAC installation in industrial buildings
- He had a number of accidents, however, falling through roofs, falling off of ladders and more
- His wife, who was pregnant with their 3rd child at the time, suggested that he consider a change in his career path
- Right after that, he dislocated his shoulder while body surfing
- He took his recovery time to re-evaluate his career
- He reached out to a friend of his who was in commercial real estate
- Michael asked him about property management
- His friend suggested being a broker instead and said because of his construction knowledge that he would probably do well in industrial real estate
- He did some research and talked to his wife about it
- They decided that that would be a good move
- He studied and took the test while he was on disability
- His friend introduced him to Lee & Associates in Long Beach, CA, he was interviewed and got the job
- After his wife had her baby, he started the job
Becoming a Commercial Broker
- It took him awhile to learn the ropes of the trade
- Did a lot of cold calling
- Used Google Earth and Google maps to find industrial areas and called on owners
- He would drive the market and try to find vacant buildings or people in need of expansion
Industrial Commercial Real Estate
- Multi-tenant industrial (generally small businesses)
- Warehousing – distribution, general merchandising, food
- Land used to park containers, trucks, trailers, logistics
- Warehousing is exploding as ecommerce exploded with Covid
- Many companies have transitioned their business models to include ecommerce
- Port of Los Angeles and any other major ports around the country, especially if they have truck parking, are very hot right now
- Some companies were hit in a negative way due to Covid and have had to downsize into smaller facilities
- There are other situations where a building owner passes away and the building is inherited by a spouse or family member
The Value of Industrial Buildings
- You have to look at a number of factors:
- The neighborhood
- The area
- How close the property is to freeways
- The closer you are to a port, the pricer the property gets per square foot
- If the building has dock high are at a premium
- Smaller buildings (less than 10,000 sq ft) that have dock high are rare and more expensive
- Land
- He came in contact with a deal a couple weeks ago
- Was on a corner lot
- Close to the port
- In the city of Wilmington
- Had truck container parking
- Brokers brought it to market on a Thursday
- By the following Tuesday, they had 5 offers
- Rent has doubled on properties like this
- It’s a lot, so there’s not a lot of maintenance
- Multi-Tenant
- If you can acquire a multi-tenant building with long-term tenants, there’s great opportunities for upside
- Price-per-square-foot has gone up significantly
- Industrial buildings have various compositions
- Sheet metal
- Stucco
- Masonry
- Concrete Tilt-Up
- Some have very nice offices inside
- If you have functional docks, you have to re-pave on a regular basis because of the wear and tear
- Many of the buildings are easy to get ready for sale because of the simplicity
- In Southern California Los Angeles area there is a shortage of industrial commercial properties
- There’s a high demand for space but not a lot of product
- Multiple offers come quickly when a product comes to market
Bringing Parties Together
- One of his roles as a commercial broker is matching people who have a need with those who can meet that need
- Michael is both a landlord rep and a tenant rep
- As a landlord rep, if there is a Multi-Tenant property that has a vacancy, he would
- Put a sign out in front of the building that space is available
- He also would work with the building owner as to the best tenant prospect and strategy to find that tenant
- He would also discuss best pricing options and best use of the property
- Put out the word to all the brokers in that area announcing the availability and asking for tenant referrals
- As a tenant rep, he would help them to find the space best for their business
- There are also a number of international clients Michael works with who are looking for industrial commercial properties both as a tenant and potential buyer
- There are also different aspects of industrial commercial
- Logistics – Those companies that have the trucks, containers that go to the distribution centers
- Small businesses:
- A company that makes widgets needs to have a warehouse space to store their widgets
- Clothing company that needs a place to make their clothing
- Printing companies
The Hottest Types of Industrial Properties
- Properties with loading docks are in great demand currently
- Manufacturing facilities don’t need docks as much
- Distribution buildings use docks more
- Demand is strong
- Most industrial properties are selling within weeks
- Properties closer to the ports are in biggest demand
- In Southern California, some of the hot areas are:
- Compton
- Rancho Dominquez
- Carson
- Wilmington
- Mid-Counties
- Paramount
- Santa Fe Springs
- Inland Empire Cities
Industrial Newbies
- Start by figuring out what product type would work best for you
- Do you want a building with just one, two, three or 10 tenants?
- Do you just want a low maintenance land sight for people to park their containers?
- Ground-up development would require a more experienced team
- Or you could start small
- Some industrial buildings start at 5,000 square feet
- Location Tips
- Regarding use, it would depend on where it is located
- If it’s closer to the ports, it’s more of a premium
- If it’s close to a major freeway, it’s more desirable
- Regarding use, it would depend on where it is located
- Does the business type match the building?
- Is it industrial but has street frontage where you have a potential retail look that can draw customers in
Biggest Investor Mistakes
- Waiting!
- He had a client that was going to buy a building at $2-3 million
- Covid hit and he decided to wait
- Now the building is being listed at $6 million
- Another owner bought a building at $150 per square foot and thought he got ripped-off
- Today he does not feel ripped off because it’s now worth $220 per square foot
- There’s still great opportunities!
- Get to know some brokers now and get educated
- Prices are continuing to rise!
Biggest Investor Successes
- The investors that seem to do best are taking advantage of the opportunities they are seeing and not waiting
- Sticking to their investment criteria
- Making lots of offers
Advice for Old Dawgs Looking at Real Estate Investing to Help Them in Their Retirement Years
- The industrial (real estate) market is thriving, with no signs of stopping
- He read an article recently that said a billion square feet of additional industrial real estate space will be needed by 2025 because of the increase in online sales alone
- Get educated by talking to industrial real estate brokers
- There’s overlap with other asset classes. For example, self-storage can encompass industrial
- It’s not as labor intensive as other forms of commercial property
Current Business
- He wants to grow
- There are a lot of people with real estate needs
- He wants to help as many people as he can
Rap-It-Up
- Favorite real estate book: Rich Dad Poor Dad by Robert Kiyosaki
- Favorite business book: How to Win Friends and Influence People by Dale Carnegie
- Most valuable web site for success (other than your own): Loopnet.com and GoogleMaps.com
- Favorite app: Co-Star and LoopNet
- Favorite quote: “Wealth gained hastily will dwindle but for whoever gathers little by little will increase it. – Proverbs 13:11
- If you lost everything – all your assets – and had to start all over, knowing what you already know, and you only had $1,000, what would you do to launch your real estate investing business? I would hire a virtual assistant. Then, I would gather (industrial real estate) owner contact information. The virtual assistant and I would call the list, set-up appointments with me (and I would get business through that process to generate income).
How to Reach Michael
- Phone: 310-965-1749
- Email: mhernandez@leelalb.com
- Complimentary Professional Broker Opinion of Value for Industrial Properties and Free Report
- Here is the link: https://www.lhcommercial.com/complimentary-bov
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