Is Small Bay Industrial Making a Comeback?

0:00 It's a it's a bloodbath, absolute bloodbath. I've seen prices come down back to those 2016 prices. So Speaking of industrial, what are you seeing right now? What's the What's the hot app class size location? OK, what's struggling today? Obviously you're a class big box that maybe I don't want to say the word overdeveloped because I think the long term outlook for it is totally fine good. But you know that a class product 20,000 feet plus they're struggling. You know, I filled a lot of vote. I can, I can speak about industrial, that's where I speak and I can get into some land, but it's industrial land, so. Well, that's great.

0:44 I'm happy to hear about industrial. I've been playing in this water world a little bit. Industrial is was my bread and butter. So I'm excited to hear the nuance of what you've learned recently because I've been distracted by waterfalls. OK, good. I got you. I like to see what people are saying on the phone to me. I get the calls and I'm always just like collecting mental data. So I would say, OK, it's 2026. Between 2016 to 2021, we'll say every phone call was I want small Bay industrial multi tenant warehouses. OK, great. So does everybody else. You know, mazel tov and Supply and Demand has it right And the they say in investing terminology, right, you got to zig when people zag, right? If the secret's out, you're already too late. So I found between 2016 to 2021, everybody was calling on small Bay industrial.

1:39 Then between 2021 to 20252026 and and this is still existing, but it became the the phone calls shifted from small Bay multi tenant industrial to iOS. Everybody wants iOS, you know I3 low coverage. Outdoor storage, superior Bunsen lighting, all the things. And I get it and I love the product type, but again, when I'm noticing the inventory of the phone call over and over and over and everybody's looking for the same thing, it kind of sets off the alarm. And it's no secret that there are these multibillion dollar funds buying up all the iOS in the country right now.

2:22 And what the impact of that will be, you know, is a discussion for another time. But I noticed recently my phone calls started changing back to I want small Bay, multi tenant, industrial and even the biggest, I'm talking to big developers who are saying, you know what we're modifying what we're doing right now. You know, maybe we built something in Dove Valley and we're sitting vacant or in DIA and we're still vacant or up by 25 and we're, you know, we want small Bay. What I'm seeing is a big shift back to small Bay. Now on the leasing side, we do a lot of leasing. Thankfully everything in the small Bay, up to five, I'd say 0 to 5000 feet is leasing well.

3:11 Really. Really. Strong leasing across the Front Range, those bigger suite sizes, 10,000 feet, it's a it's a bloodbath, absolute bloodbath. I've seen prices come down back to those 2016 prices, a very humbling variance for landlords to no, Colorado is an anomaly market. Like we were the first state to legalize marijuana recreationally, and that had a latent material impact on our warehouses. And what I like to say is, you know, the party's over and he now has the hangover of what happens when your rents surge 75% overnight. What goes up can come down, and a lot of real estate owners don't understand that.

4:01 They think, oh, it goes up, I'm rich. Rents only go up, rents only up. Right. And so now we're in what I call the hangover where rents are resetting. And that's an interesting time. So I suppose, you know, it all goes back to the fundamentals. Don't buy real estate poorly, don't do dumb deals, and you'll be fine. I'm so glad that you mentioned the Colorado legislation with the medical marijuana or just marijuana in general. I used that moment in economic time and data to get myself into the acquisition world originally. So I'm sitting in Chicago. I'm going to go back even further in Tide. So it's 2016, I'm sitting in Chicago.

4:44 I am actively managing all of our development accounting, spend all the draw processes, the middle man for all the money. And I'm looking at Colorado. I'm about to wrap up my master's degree and I'm thinking, OK, I want to build walls. Well, I'd like to go home to Colorado as well, 'cause I love Colorado. And wow, would you look at that. The data is showing 1% vacancy, half a percent vacancy, just absurd absorption and leasing metrics. And, and it all goes back to the legislation requiring, and I, I don't recall the exact percentage, but I think it was 30% of your marijuana product that you sell has to be grown yourself in your own facility.

5:27 Something like that was the rule. And what it did was just, Jim, everybody into the Class B and Class C warehousing that Class A started to get aggressively in demand. And all of a sudden everybody was wanting to build again because vacancy was on the floor. And so I went to some friends at CBRE and said, Hey, I, I know you don't know me. I'm a new young nobody, but can you give me some data points? And I went and pitched our CEO and our chairman sitting out in Chicago, and I said I want to go to Colorado. I want to chase Colorado and the Mountain West. Look at this data. Look at the macroeconomics. How could we fail what we didn't know? Was that COVID? Was coming and it was going to throw a wrench at everybody. Couple wrenches.

6:07 My first project pursued in Colorado was in Del Valley. I chased the and had it under control and I rezoned. It wasn't easy rezoning, but the site where the blue scope, Amazon 250 or so sits today, I didn't get that one vertical, but I got it rezoned. So that was at least a minor win. But yeah, going it all comes down to data and economics. It got me into the acquisition world, not easy. And eventually I came back to Colorado and now I'm called 85% plus focused on only Colorado. So it's you never know what the world's going to take you.