E2: COVID-19 and Industrial Development

Jake Terkanian is a Senior Vice President who specializes in bulk industrial properties in the I-78/I-81 Corridor in Pennsylvania. Jake’s areas of expertise include strategic market engagement, site due diligence, land development, and build to suit strategies. He has collaborated with CBRE resources to deliver fully integrated service solutions for corporate clients inclusive of Supply Chain Optimization, Site Selection, Project Management, Labor Analytics, Financial Consulting, Cost Segregation, and Economics Incentives. Since 2006, Jake has delivered over 10 million square feet of industrial space with an aggregate construction value of over $1B.

Warehaus:

My name is Matt Falvey and I’m your host for today’s episode. Today we will be talking about the impact of the current pandemic crisis on land development, e-commerce and the industrial warehouse distribution sector. Our guest today is Jake Tarkanian. Jake is a senior vice president at CBRE who specializes in bulk industrial properties along the Interstate 78 and Interstate 81 corridor in Pennsylvania. Jake’s areas of expertise include strategic market engagement, site due diligence, land development and build to suit strategies. Since 2006, Jake has worked with a large number of national clients to deliver over 10 million square feet of industrial space. The majority of which were special purpose build-to-suits with an aggregate construction value of over one billion dollars. So, without further ado, welcome, Jake. And I thought we’d start off with you telling the audience a little bit about your background and what led you to your profession and in particularly this industry.

Jake Terkanian:

Thanks, Matt. Really, really appreciate it. Thanks for having me. So, I cut my teeth in the bulk power sector. I was an electrical engineer, just out of school and I started with a company called PJM Interconnection. And what I was doing for them was, I was helping to coordinate the design and construction of power plants and transmission infrastructure on the black power grid in the Northeast. I did that for a few years, and I got interested in real estate. And in 2005, I took a consulting position for Trammell Crow Company and I was doing predominately tenant rep consulting, big corporate fit ups. Corporate office space is kind of where I started in the real estate sector. Then I had an opportunity to get a taste of industrial in 2007, 2008 and never looked back. So really, the past 13 years, I have solely focused on bulk industrial warehouse. I was running a national practice group within CBRE. Actually, CBRE acquired Trammel shortly after I joined. So, I started a practice group in CBRE and I was just specializing in industrial-to-suits – a lot of complex manufacturing facilities, high dollar value facilities nationally.

And then I did that for about 10 years, and then, I kind of transitioned into more of a transactional role or brokerage role. I guess that was about six years ago. And so now I’m not national, but I’m focused on I-70, I-80, in Pennsylvania, which we’ve kind of coined as the Inland Empire of the east major thoroughfare for industrial services, a consumer base in the northeast area of the U.S. So, it’s been great!

Warehaus:

That’s awesome, Jake. Pretty extensive background and experience level comment from you. Really appreciate you sharing that with us. So, we know that Governor Wolf Sauder here in Pennsylvania shut down non-essential businesses. You know, this impacts construction and land development, and clearly impacts the bulk industrial warehouse space here. Let’s kind of look forward a little bit, if you don’t mind. I’d be curious to get your opinion on how you see this transforming e-commerce, as it relates to the retailers, and maybe take it a step further and let’s dive into how you see that maybe, translating into the warehouse sector.

Jake Terkanian:

Sure. Yeah. I mean, that’s the $64,000 question here. You know, what’s the what’s the resultant impact going to be long term? And if you look at just kind of everyday life right now, you just took a snapshot. You know, I’m married, I have two kids, and we’ve got to feed everybody. Right. So, we’re buying all our groceries online, everything. I have not stepped foot in a store. And I think my family’s probably a little bit more progressive as it relates to online shopping. But there’s a large swath of people out there that are being forced into buying online right now. If you look at overall retail sales in the U.S. as a percentage, about 10 percent of retail sales are online, but only 2 to 3 percent is online grocers. So, that number is skyrocketing right now because everyone’s buying stuff online. And what I believe will happen, I think a lot of other people believe this as well, is that there’s going to be a pretty significant subset of people that have quickly gotten accustomed to buying stuff online and will continue to buy stuff online. The big retailers have been putting a lot of money into their infrastructure to transition into this e-commerce movement. They certainly couldn’t predict something like this with this kind of volumes, but they are putting money into infrastructure to kind of grow their e-commerce business and eCommerce platforms.

So, we believe this will be a pretty significant springboard for not only the existing retailers that are out there, but maybe even new retailers that come into the E-commerce space realizing that this is going to be the new way of the world and that this is going to translate into more warehouse infrastructure. I mean, yeah, the brick and mortar retailers have been shrinking considerably, and eCommerce is coming to light. So, we see that space growing and that’s a market for us as warehouse space and fulfillment space providers. And then, you know, more granularly, the cold storage space and the infrastructure around cold storage and direct-to-consumer grocery delivery, we see that space exploding post pandemic.

Warehaus:

Yeah, very interesting. And no question about it. Interstate 78, Interstate 81 corridor. And I’d even throw in Interstate 83. So basically, you know, South Central Pennsylvania in the Lehigh Valley area are without a doubt the ground zero for what is an industrial warehouse boom, if you will.

Hey, do you practice in another market? Are you pretty much exclusively practicing in the bulk industrial warehouse space? And what type of investors do you see buying into these buildings and into these projects?

Jake Terkanian:

Yeah, I mean, look, that’s the me. All I do is bulk warehouse. So, when you look at the product type that my portfolio is composed of, it is basically any building that is over a hundred thousand square feet in that Eastern Pennsylvania market. So, the buildings in our market range are anywhere from, you know, a hundred thousand square feet up to, you know, upwards of a million or even 2 million square feet. So, very large format warehouse facilities. And a lot of these buildings are being built speculatively. A lot of institutional capitals has been flooding into this market both domestic and international. It’s a really good safe bet for investors. You know, when you look at the money behind a lot of these warehouses and who owns them, its a lot of life insurance companies, and pension funds. You know, it’s capital seeking, stable long term investments. And that’s a good place to be, right? It’s not risky. It’s risk averse. So, we see that the market is going to continue to grow. I mean, everyone is going to see a blip right now just by nature of what we do. We show buildings and we tour clients that want to lease space. And just by nature of what’s going on with COVID-19, our business is going to take a dip. But we feel really strong about the recovery and everything I was alluding to before as far as buying trends and access to the consumer base.

You know, the other thing about our market Matt, is when you look at the 78, 81 corridor and you take a national lens to it, we can service the entire population base in the U.S. east of the Mississippi within a two-day truck drive from Eastern Pennsylvania. There’s really no other location in the entire country that has that kind of access to population density. Even if you look at like Southern California, in Long Beach and L.A., they can service everything west of the Rockies in a similar time frame, but there’s not as much population there. So when and if you take an even more macro lens as to what’s happening from a global supply chain standpoint, you know, the Panama Canal was expanded considerably and there’s been a lot more flow of freight through the canal to hit the East Coast ports. And all the East Coast ports have been upgraded to accept the post-Panama ships. So, we’re we’ve already been seeing more volume on the East Coast and that product needs to go somewhere. And the buildings that we work on every day. So, I mean, it’s kind of a perfect storm – what’s happening here. And it’s been happening for a while. But I think this pandemic is going to exacerbate it. But that’s actually that’s the silver lining that’s going to translate into a boon for our business, I believe.

Warehaus:

I couldn’t agree more, Jake. And living in this part of the country, in South Central P.A. and Lehigh Valley, we’re definitely going to be the tip of the spear for when that reshoring of manufacturing global supply chain occurs, if you will. I guess it kind of goes hand in glove with what is going on with technology. So, I am kind of shifting gears a little bit here. Have you been leveraging technology to stay relevant in conducting business and working with your clients during this time of isolation and shut down?

Jake Terkanian:

Yeah, well, I’ve never done so many video calls before my life. I mean, I’ve been in Zoom conference calls at least two to three times a day since this whole thing started. And I’ll tell you what, it’s kind of cool because you get to, I mean, you get a new experience, right? I mean, everyone’s done some video calling before. I mean, pretty much everyone has done a bit, you know, personal or business. I would think that, you know, pre-pandemic the majority of communications with our clients were either phone calls, emails or in-person meetings. Right. So, the in-person meetings right now, obviously, you can’t do it. The next best thing is that video call. And, I’ve over the past couple of weeks, I’ve actually preferred that method over phone calls. First off, the technology is a lot better. You know, if you call now or even face time, it is really, I mean, if you have a decent Internet connection, there’s no delays. You do get a sense of better connection with the people you’re talking with. And my business is such a relationship business that it’s important to keep those relationships sound. So, the video-conferencing, I think is paramount. One thing I’ve seen talked to others as well is that you had a lot, you know… everyone’s working from home now, so they’re working in their home office or their living room and they’re in front of their computer and they’re just cranking out a lot more emails, so that the email traffic, at least from what I’ve experienced, e-mail traffic is going up to a certain extent.

And I prefer to kind of stay in touch face-to-face through video. I mean, obviously, you have to be on top of your email, but I prefer to have more personal touch with our clients and be there, be it either on the phone or on a video conference call. I just think it’s more meaningful. You get more out of it. And I think you build better relationships that way. So, it’s kind of like, I feel like that’s the way it’s going to be for some time. You know, I think we all can agree this probably isn’t going away for a couple of weeks, you know? Yeah. So, you just got to get with the times. And there’s been a number of people that I’ve talked to over video conference that have said that kind of outright like, this is kind of a new thing for us, but we kind of like it. So how that translates to office space is another issue. That sector is going to be a big question mark. Right. What’s going to happen to what was office space, and how’s that going? How is that going to be impacted? That’s probably a whole other podcast, but yeah. Yeah, no doubt. It will be interesting to see what happens.

Warehaus:

Yeah. The technology today, I mean, it’s so intuitive and very user friendly. It definitely has been an awesome tool for many of us during this shutdown and in quarantine time period. We certainly use it at Warehaus. We like Microsoft teams and you know, some use Zoom. But the reality of it is – you’re right – we could probably do another podcast on what are the implications for, you know, the future use of office space as more and more people become engaged via virtual technology, particularly with how easy it is to use. So anyway, that being said, is there anything you, maybe, would like to leave with our audience that we have not discussed up to this point? Any challenges, any themes, any opportunities that you’d like to share?

Jake Terkanian:

There is another theme, I think, that that needs to be communicated and that’s, you know, the reshoring of manufacturing and the adjustment of the global supply chain. Right. We’ve become very dependent on, you know…the US has become extremely dependent on the global supply chain, not only China, but other countries that are manufacturing goods and then we’re importing them. So we’ve, very quickly, figured out the weak link in our overall global supply chain. And I believe that, we’re not making enough of our essential goods and consumer goods here in the States. We’ve already seen a very significant uptick of reshoring and near shoring of manufacturing. So, the manufacturing sector, I believe, is going to be a big growth opportunity as well. So, I think that’s going to be a pretty significant theme. I was working with a major distributor of medical supplies and they need a million square foot building. That’s twenty-five acres under roof. You would think, right now, they’d be like slamming the pedal to the metal, trying to get that space. But the problem they’re having right now is that they need the space, but they can’t get these supplies because they’re supplied internationally. Most of their stuff comes from China. So now instead of focusing on getting real estate, now they’re focused on remapping their overall supply chain. And that’s going to trickle down into what I believe is going to be a major reshoring effect or near shoring effect on manufacturing in the states, both in medical supplies, pharmaceuticals and consumer products. I think there’s going to be a big push of that in the US. It already started. And again, I think this is going to be, you know, this post- pandemic world, will be something we’re going to see a lot more than we’re now.

So, that’s an area to look at. Then keep ahead of that. You know, a lot of the stuff that I do, you know, on the land development side, we have to have land to build buildings. Right. So a lot of the stuff that I do, I’d say 30 to 40 percent of my business is taking land through the land development process, and getting it ready to build buildings either for an investor or for a user or a tenant. So, I think that business is going to be paramount as well. I mean, securing land in a pretty developed market in central Eastern Pennsylvania to get ahead of this wave, you know, there’s a decent amount of land in the pipeline. But, you know, you start looking to three years out, that pipeline starts getting really thin then. Yeah. So you know that the land development piece can be important to get ahead of in the coming months and years, you know, assuming that there is going to be this reshoring effect, and significant boom in e-commerce. That is going to translate to, you know, more facilities like this and more land that needs to be developed. So, it’s becoming more and more difficult to get ground entitled, right. I mean, there’s a sensitivity in certain communities around warehouse development because of the truck volumes and other issues. But there’s also a significant economic advantage from having warehouses in your communities. A lot of people are reluctant to see that. But there is significant benefit, especially if its done responsibly.

Warehaus:

Well, I mean, you’ve got to address stakeholder activism, right? I mean, it is real. In fact, we recently hosted a workshop program at Warehouse in our studio. We had a land-use attorney come in and talk with us about it. He’s very well-known in the area with a grassroots advocacy person we brought in from Boston and we discussed this very issue. And the reality of it is, you know, the days of coming in and thinking you’re going to ram a project through are over, don’t you think?

Jake Terkanian:

Yeah, you know, the old days of jamming development projects through a township – they’re kind of over, right. I mean, the constituency at these townships, are getting smart. They’re getting very sensitized to the volume of development because there’s been a significant increase in volume of warehouse development. Without a doubt. But again, as long as you’re responsible with your approach and you engage the community and plan it properly, you know, this development in this sector can be a boon not only to the eCommerce and industrial real estate business, but it can be a boon for local communities with the tax income to come out of it and the jobs. And, you know, sometimes people get blinded by that… by the old perception of warehouses. But warehousing is not what it was 30, 40 years ago. It’s a lot different now. These are state of the art facilities that are aesthetically pleasing with good paying jobs, bringing very good impacts to communities. And that’s what I think people need to really understand. You know, globally across the board, that’s what has happened.

Warehaus:

Yeah. With stakeholders and municipalities…. everyone coming together. The reality of it is, you’re not going to get an eyesore slapped down or put together in the middle of your neighborhood. Very unlikely that is going to happen. So, why don’t you share with everyone how they can get in touch with you and ask you any more questions or reach out to learn more about what you do and what services you can offer?

Jake Terkanian:

Yes, sure. Absolutely. I think you’re going to include a link to my profile. So. Yeah. Feel free to reach out. Email or phone. It’s all in my profile. Happy to just talk. You know, it’s going to be interesting times over the next couple of weeks and months. And there’s a whole other dynamic that we did not even talk about. But there’s a lot of conversation going on right now about rent relief, rent deferral. You know, for landlords that have tenants in space where their business may be shuttered or shut down for the time being or maybe even closed, what’s going to happen with all that? So that’s another major discussion element that we’re having with a lot of our clients, our landlord clients and our tenant clients. So, for anyone that’s listening, that would like to get a real time perspective on what’s happening in that vein. I’ll be happy to connect and share some ideas.

Warehaus:

Well, Jake, this was awesome. Thank you so much again for taking time out of your day and doing this with us. Really insightful. Really enjoyed it. I certainly look forward to the day where maybe, you and I can get together face to face and celebrate a resurgence in our economy and getting back to normal, everyday life.

Jake Terkanian:

Hey, man. I can’t wait till that day.

Warehaus:

Well, Jake, you’re my friend, and thank you so much. You got it. Thanks a lot. All right, this concludes today’s episode.

Thank you for listening to another Warehouse Speaker series podcast. We hope that you found our knowledge sharing session insightful and relevant. We look forward to our next episode. If you would like to speak to us or share feedback, please email us at info@warehausae.com. Until next time. Stay healthy, everybody.