Friday, January 7, 2022

Lunch with Rob Neal - Hager Pacific Properties

Image Attribution: www.hagerpacific.com

With a holiday lull fast approaching - no I’m not predicting a long-term downturn in commercial real estate activity; just the normal respite that occurs at the end of every year - occasioned was the opportunity to lunch with a dear friend, Rob Neal of Hager Pacific properties. Rob and I have known one another since we had different colored hair, but I digress. Our time was a chance to measure our collective gauge on the commercial real market and enjoy a bit of Christmas cheer.
 
For all three of you who don’t know Rob, “he is a managing partner with Hager Pacific Properties and oversees the firm’s acquisitions, renovations and dispositions. He is also an active community member and holds or has held board positions with the following non-profit organizations: the Orange County Council of the Boys Scouts of America; Catholic Relief Services; The Becket Fund; Catholic Leadership Institute; The Pacific Club; Magis Institute of Reason and Faith; the Orange Coast Chapter of Legatus International; Second Harvest Food Bank, and Christ Catholic Cathedral Corporation.”
 
A bit about Rob’s firm, Hager Pacific Properties. “Using internal capital, they specialize in purchasing properties that range from those in stabilized condition suitable for a long term hold to those that are aging, vacant, environmentally impacted, or under-performing.” Over the years, Hager has amassed a portfolio of close to 120 properties and 14,000,000 square feet. They’re one of the largest private property owners in the United States.
 
Serenaded by Christmas carolers as I arrived at our meeting spot - my mind recalled another lunch with Rob on March 9, 2020. The pandemic was becoming a thing and Rob was particularly melancholy that day. His normally upbeat outlook on the future was quite dark. Because Rob was concerned, I became nervous. Four days later our state was locked down. Wow! He was quite prescient.
 
21 months hence, 37.2% in rent increases, industrial demand off the charts, constricted supply chain, and one new grandchild each - could he have possibly predicted the favor manufacturing and logistics buildings have enjoyed? A resounding no, according to Rob. His why - I found illustrative. Certainly people are buying more on line. Ok. Got it. But Rob described it like this. We have - and are continuing - to rebuild our supply chain. Here’s how. Not so long ago, we visited VERY expensive warehouse spaces filled with stuff. In these buildings - the ceilings weren’t particularly tall, the loading was a bit compromised, but they were well located on busy intersections. We as shoppers bought, loaded, and transported the purchases to our homes. Predominant on the building’s front, on all paper bags and carts were names such as Von’s, Ralphs, and Albertsons. Yes! Your local grocer. Rob noted the biggest change he observed during the pandemic were folks our age…50…err…ish joined the Amazon party - our generation started ordering food on-line. Initially, because we hadn’t a choice. But once we got a familiarity with the simplicity and ease - we became believers. Hmmm. What else can we order and have on our doorstep tomorrow? Everything but the kitchen sink. As a matter of fact - the kitchen sink also - Kohler, Kraus - you name it.
 
So why the meteoric rise in lease rates? Rob believes - as do I - it’s purely supply and demand. We’ve endured limited availability of space, acute lack of new development - supply, coupled with rebuilding our supply chain - demand. Larger, taller, and more centralized are the e-commerce distribution centers with the flagship Amazon adding 300 new warehouses in 2021. A voracious appetite with no Christmas leftovers.
 
When does it end? Rob and I read with interest the Chapman Economic forecast published last week. An anticipated rise in borrowing costs will cool the sizzling home buying binge and result in price depreciation of 3% in 2022. Expect, according to Chapman, a recession in 2023. The culprit? Rising interest rates. Rob’s take was a bit more granular. Mentioned was the 50,000,000 square feet of new industrial development in Dallas. After all, how will they house the exodus from California? Building is easier outside California and Rob believes this “over-built” episode will cause price concessions. Something none of us foresees could derail us. Like a 100 year pandemic? Ok. Bad example but you get the idea.
 
Belated Merry Christmas to you all. I hope you enjoyed the lunch chat as much as I did.
 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.
 

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