The Industrial Development Formula | Market Trends, Deal Making & Digital Presence

0:02 This week's listener of the week is Kent's conundrum. Kent, thank you so much for leaving us a five star review. And for those of you listening, if you leave us a five star review below you might be next week's Listener of the Week Week week. This week on Commercial Real Estate Secrets, we have Nick Sansone. Nick is the principal at Sansone Group. Nick, thank you for being on the show today. Thanks for having me. Nick, for the listeners, who are you and what do you do in the glorious world of commercial real estate? Well, my name's Nick Sansone.

0:43 As we just established, I'm a principal at our family business called the Sansone Group alongside my two brothers, Jim and Doug. They're both principals as well. And our company was founded and started by our Dad about 68 years ago. He passed away in 2020 and is a backbone of our company certainly. And we continue his legacy forward with what we do. And what we do is we are real estate developers. So we develop industrial warehouses around the United States, strong credited anchored retail shopping centers and we also do data centers as well. And then we're also a third party service provider. So we do the property management and the brokerage and things of that nature in the real estate space. So I could ask you questions all day because this is right up my alley.

1:41 We have a lot of warehouse listeners in on this podcast. What's the deal with data centers? Why is that the newest, hottest product that we hear about but we might not see? Yeah. Oh, it's tough space. It's an expensive space. But I think the obvious answer to that is the AI, you know, all of the AI technology that is coming, that's already here and that's growing so quickly. You know, it's, it's essentially a race to who can generate the most power, the most electricity far this AI technology really between the United States and the rest of the world. And so that falls into real estate because it's, it's all about the power that's available on these different land sites. And so you could have a traditional industrial warehouse and have access to power.

2:41 And instead of having, you know, traditional type industrial users like, you know, third party distribution companies or an Amazon, FedEx or what have you, you end up having, you know, one of these hyperscalers as your tenant and they're essentially leasing power from you just within a brick and mortar space. That's interesting. So as much as I want to get into the weeds about industrial real estate development, I want to kind of pull back now. You and I have something in common. We both work in our family business. You know, everybody wants to hear this story about how you started from nothing. And in commercial real estate, it's very, very common to start from your family business.

3:27 And that doesn't mean that you didn't work or learn to get to where you are today. So say I wanted to be an industrial developer like you. What would you do to start as an industrial developer in 2025? Yeah, I, you know it. I think it's like anything else. Nothing happens overnight, OK. And so to get into the industrial space or any space within the development world for real estate, you know, there's many different places you could start. I mean, if you wanted to be a developer, I often say to start in the banking world and learn finance because it's all about finance and it's all about what kind of debt and what kind of payment terms you can get on your deal that ultimately drives everything. Secondly, you could start as a broker. Obviously there's plenty of skills within brokerage, but I think the most important aspect, and I don't care what field you're looking to get into, is that when you get into it, you have to think about the value that you ultimately can provide versus what you can receive.

4:37 And so if you're a broker and the idea is to go out there and list land deals or to make a Commission on selling land, or, you know, perhaps you're, you know, selling office space or perhaps you're a tenant Rep broker where you're helping somebody find their office space. You know, it's easier said than done. But if you don't focus so much on the fee, but you focus on the service provided, you focus on the client, you focus on the needs of what they want, things start to just fall into a place. That's the same thing with development. Instead of just focusing on, well, what can we make? You know, how much money can we make on this deal? What about focusing on the needs of the city? What about focusing on what they want? What about focusing on how we can bring jobs to the city and how this development is going to improve the community, improve the community. So when you think from that lens, opportunities start to come your way.

5:28 So if you want to get into industrial development, you obviously need to learn the ropes. I think a great way to do that is in banking, understanding finance, certainly in brokerage, understanding the way real estate works, certainly shadowing with people that have done it before you and following their lead. But at the end of the day, you know have some values and care about what you're offering versus what you can get. The more you give, the more you get. It's true. I was just on a phone call with a buddy of mine who was doing a report. He's a reporter. We're talking about big box industrial product. We're talking about the last five years. How there was we'll say last five to 10 years a surge of industrial big box product that came to all of our markets and now we're seeing a bit of a pullback and lighter leasing velocity.

6:31 From your experience, what has happened in the last 10 years that created this new wave of a need for big box industrial product followed by then the pulled back? Yeah. I mean, over the last decade, there's a lot of things that have occurred. But I mean, certainly when you have the increase on the e-commerce obviously changing for brick and mortar, that was one of the reasons we frankly pivoted into the industrial space not too long ago. But we primarily had owned retail, anchored shopping centers and we developed mainly retail, but we were looking at the sales every month you get the you get the sales reports from all your tenants, at least a good chunk of them. We're seeing the sales was continuing, starting to go down and e-commerce was picking up at that time. And that was when there was all the question of whether brick and mortar was going to survive, you know some of those major retailers that were going out of business and that was during that time.

7:25 And so e-commerce obviously increased, more packaged goods, more warehouses, more logistic companies needed, more distribution needed across the globe. So that was one thing that kicked up the industrial. And then I think the second, the obvious was COVID, you know, when COVID shut down, when COVID basically shut down the world, everybody was at home, everybody's ordering goods. And then there was this, there was a stockpile too, of demand where everything stopped for a while. And then when it came back, it came back on fire and we were just explosive. I mean, there you couldn't have an industrial deal. That didn't make sense because there was so much built up demand cause things had been on pause for so long. And I think now you see that tapering down the tariff stuff, you know, didn't help anything.

8:11 But I, we felt that that was going to be a momentary type situation. It seems to be panning out that way hopefully. But at the end of the day, I think it's like anything else. When things are on fire, everybody's in, everybody's doing well, things start to slow down and you weed out all the junk and the folks that follow the fundamentals and the principles stay in. And some of the fundamentals and principles is dirt, location, demand. And we do not change our fundamentals or principles no matter what, no matter how great the market is or if it's on, on a, you know, complete hold.

8:54 And I think that's what's critical, regardless of what's going on out there, is to stick to the basics. So you're a developer in 2025. Interest rates are all over the place. You know your debt market's all over the place. Your construction prices are all over the place. Property taxes aren't going down. Insurance nuts. How are you underwriting deals? Well, we had some good practice over the last five years. I mean interest rates were I think in I think the cap rate on a deal we had I think literally in 3/4, we are underwriting and at the time at a 4 1/2 exit and I think by the time 3/4 went by that thing had gone up to almost 6 1/2 or 7. There was such a switch from the boom of post COVID to them things just stopping, you know, when we went through all the inflation and everything else, well, essentially the recession. And I've never, ever seen a shift like that. And the the prices on materials during the COVID situation for construction.

10:10 I mean, just if you had deals you were underwriting at that time, I mean, whatever assumptions you made were completely out the door. And so there those times were worse than not in my opinion, in terms of the interest rates and escalating costs and everything else. But again, you ask how we underwrite the same we did then is the same we do now. You have to make sure that you've got enough reserves in your deal to cover for unexpected circumstances. You've got to make sure that the exit cap that you're using is conservative and have the sensitivity where it's the deal makes sense certainly on the high end, but you've got to look at it on the more conservative end as well. Same thing with your rents, you know, are you trending them or using what the rents are today?

10:58 So we like to be extremely conservative with our models and it's the only way that you can essentially account for all of the volatility that's going on. Make sure your reserves are, you know, really accounted for and up there 'cause you never know what's going to happen and often times something happens with development that you didn't expect. We're having this conversation today in our investment committee and when deals that the guys are presenting or the gals are presenting bring it to us. We all have meet on investment and it was a deal that we were looking at and that it's a good looking deal, but it is a lot of the assumptions being made are based on what we believe is coming in terms of the market. Well, if this development happens and if this development happens and if these rents start going the way we anticipate, we'll be able to get this exit cap, we'll be able to get this type of rent.

12:01 You know, and it may very well go that direction, but that's not how we underwrite deals. If we have a development deal or an acquisition deal that we're looking at, that deal has to make sense right now based on today's cap rates, based on today's rents. And we have to have a lot of fat in there to cover for things going wrong. Sure, there's a time and a place for pro formas, but not in my office. I I don't love pro formas because for that very reason. It's like, let's let's work on today's realities and can we make this pencil now as opposed to underwriting with 2022 rents and a dream sub.

12:46 But yeah, I won't get it. Get it. Bye. My number was so we connected. Because you have recently made a splash online, taking your presence to the web, what inspired you to finally hop on and start sharing your story? Yeah, it's a good question. I ask myself that all the time. You know, our father was a a real pioneer and he was a great mentor and teacher and he always used to tell us about the real estate business being a thinking man's game. And if you're not thinking of what's coming and if you're not constantly evolving, you're getting passed up. And so when you look at the influence of social media, it's, you can't deny it right now.

13:43 We can all talk about how it drives us crazy and it's, you know, the demise of society and everybody's in their phones and everything else. Well, you know, that's the duality of our existence. Everything can be good and everything can be bad. And it depends on how you use it. A glass of wine might be really relaxing. You drink 3 bottles, you might end up in a gutter. So I look at the same thing for social OK. And I, I, I feel it's an opportunity to brand yourself and market yourself to a different audience or into an expansive audience. You know, in the real estate space, we're always going to different conferences. And you'll sponsor that conference for one reason. So your name and your consign can go up, right? So that when the brokers think about doing a deal, they think of you.

14:29 Well, if you have access, you do one coaster, you know, a real and you know 10,000 people or 50,100 thousand people or something can go look and view that just by two seconds click of a button. The only thing stopping other real estate folks from utilizing social media is their own concern of oh, what's somebody going to say or what have you. So for me it was really just about that. It was, look, this is another way to market ourselves. This is another way to brand yourself. You create a community, you can spread your message that you hope is a +1 to have an impact on others. And you know, you can use it for a lot of different things.

15:09 So that's why I decided to dive into it. But I, I'd say that was influenced by our father because he was a guy. I remember her dad at he passed and I guess he was 93 years old, but my gosh, dad must have been 90 and he had his cell phone and he was insistent on texting and knowing how that worked and everything else. Like he he refused to let the times pass him by. And he was a he was a lifelong learner. So I was kind of a dinosaur with social still. I am, but you know, I learn everyday. So I decided to dive in. Oh please. In our business, it is profoundly impactful and we are just starting to really starting.

16:01 I know I I closed my biggest deal on last Friday. Source from social media. Couple bucks short of 10 million. I love hearing that. That it's real. It is so real your head would spin. Very good. Yeah, Yeah. And you know, I'm with you on that. I think we're, you know, it seems like our space or real estate space, we're slow to get on board with different things. I don't know if it's just we're all just very traditional or stuck in our ways or what with things, I don't know. And by the way, I'm not knocking, I'm talking about myself, our company as well. Like it just seems to be the nature of anybody in real estate. We're slow to jump onto these things. But I do believe we're just touching the surface. And I think the same thing with AI technology for any industry, right?

16:48 But I think the same thing for us in real estate, like there are so many different ways that AI can help us. I think we're just touching the surface to learn that. So, but that's a, it's really encouraging to hear that. I love hearing that that you close that deal all through social. The reality is, is that when you put a video on the Internet and then you put your head down on your pillow to sleep at night, that video is still working for you, right? It's like Uber networking and compound interest combined. You make a video, you go to sleep, the people are watching it, consuming you. They start to figure out who you are. They trust you, right? And authenticity is real.

17:30 And people can sniff you out on the Internet. That is real. They sure came. All of it to say if they feel you're authentic, yeah, and you provide a value to the person on the other side, your videos will work overtime for you when you don't have to be at that networking event. Right. And it's. Well said. It's. Powerful. Yeah, I agree with you. So keep going, I know you are rolling out the legacy driven deal making course. I am. Tell me about. That tool for social, Yeah. Well, you know, we, for all of our real estate transactions prior to 2015, we did it just with our own capital, you know, our own money, friends and family and that sort of thing. You know, and we had to, I always say this, my brothers and I had, we're very blessed to be able to walk into a business that was already established.

18:29 You know, you talk about self-made. We're the furthest thing from self-made. You know, our father was a self-made man. And what's funny is that when you ask him how he got to where he, he was in his, in his career, how he accomplished what he did in his lifetime, coming from very humble beginnings, an immigrant from Italy, very, very little financial means of any kind. He never called himself a self-made man. He said the reason he was able to do what he did was because of the love his father had for him and the belief his father had in him, which in turn gave him a belief in himself. And so he knew all he could do is believe in himself and he always felt he was going to make it no matter what. He didn't even know how. And he knew that if he didn't have the education cause often times he was far out educated from his competition.

19:15 He didn't have the education. He knew he had one thing he could outwork his competition. Then the only other thing is he kept his word. But anyways, his legacy is, is essentially what keeps us rolling. And then ultimately, we create our own legacy by building upon what he started. And one of the ways that we decided to build on what he started was to start forming capital partnerships with institutional capital. The sovereign wealth funds, you know, pension fund advisors, endowment funds and groups manage that kind of money. They're all over the place. You know, Goldman Sachs, Invesco, Fortress, their real estate investment trust reads, public companies, private companies.

19:58 And so we felt the only way to get us to the next level would be to partner up with those type of groups on the equity side, not on the debt sect. And in 2015, that's what we did and we did a joint venture with Goldman Sachs. It was after about three years of myself and my one brother going around all over the country getting told no over and over and over, just selling ourselves, talking about who we are, our track record and. We were finally able to do a deal with Goldman Sachs. We got lucky, but we had no idea what we were doing. We had no idea how to structure the joint venture. There was this whole waterfall schedule and a promoted interest and a carried interest.

20:39 Had no idea what any of that was, no idea what fees we could charge, what a sponsor meant, what a, what a, you know, managing partner meant within the deal. And we structured it. And from that point we ended up doing to this day we've done I think 33 joint ventures. We've deployed close to a billion dollars in limited partner money and we've done, you know, billions and billions of dollars of real estate. Right now our pipeline is almost 60 million square feet combined totals about $9.8 billion. Would have never, ever, ever done that without the partners that we have. And we've been fortunate to have really awesome partners. And so this course is about how to do that, how to structure your real estate deal in a way that is optically attractive to an institutional partner, how to structure yourself and market yourself in a way that is attractive to them. How to handle that first phone call when you get on the phone with them, how to market the deal, how to market you, what's important in that, what markets they look for. And I talk on industrial, but I also cover some things in retail.

21:46 But the bottom line is it's not specific to anyone industry. It's more about how you talk to talk what they look far from a pro forma standpoint, What's important to them? Is it IRR, is it equity multiple? Is it yield on cost? How do they calculate it? We go through a lot of different waterfalls. We literally give all of the waterfalls that we've ever done where someone could take that waterfall structure and go apply it to a deal themselves. So, you know, I can't promise that someone that takes that course is going to like go out now and raise a bunch of money with institutional capital. But I can tell you this, they'll be extremely well equipped. And the other thing I'm going to do with that is have a monthly, I might do twice a month call with those that sign up for it where we just talk shop. We talk, you know about deals, what what the institutional groups are looking for.

22:35 I have some guys call in. One is the president of a public company that's one of our partners. And I talked directly to him of like what he looks for. And one of the questions I asked you say, look, if you're not a 68 year family business, if you haven't done this before, but you got yourself an awesome deal, what's important to you to partner up with that person? And his answer is pretty cool. So anyways, I did it because when we did it, there was nothing out there. We had to learn the hard way. We've essentially taken, you know, the 10 plus years we've been doing this and put it into a course the best I could. What I always say is I had the privilege of growing up at a dinner table where all we talked about was real estate and commercial real estate has always been a largely gate kept industry. But the Internet has given us the ability to teach people who might have not been, you know, the people who are not as privileged as I, as you or myself to be at the dinner table with these players.

23:34 It has just levelled the playing field. And I think overall it's just badass that you are willing to share your information, because I feel like a lot of people don't want to do that. Yeah. You know, we thought about that and it's a good point. And you know, first of all, I think there is plenty of real estate to go around, OK. And I think that when you approach, like I said at the beginning about what you can give versus what you can get, I think it's just a, a rule of life that it comes back tenfold. And genuinely, when I tell you back when we did that joint venture, we had no idea what we're doing. And genuinely, when I tell you there's nothing out there that explains it, I really felt there's a void for that. The other aspect I really thought about is it's an opportunity to build community and to connect with other real estate professionals.

24:29 You know, here's the, here's the truth there. There could be a lot of these folks out there that have great real estate deals and they may sign up for the course and learn it that way. The other thing they can do, you can reach out to me and say, hey, we need help on this real estate deal, partner up with us and let's go get some capital to do it. Because I'd say of all the square feet I had mentioned, I don't know if it's 50%, but it's close to half is opportunities that are brought to us from other real estate professionals or people that dabble in the space that have like a great piece of ground tied up, but they need some assistance in getting it finished.

25:11 And so we end up partnering with them. We form a joint venture agreement and then we bring our partners to the table and we all do the deal together. So it's frankly another opportunity to find real estate as well. And if we never do and it's just people take this course and they're able to structure their own JB's and have some great relationships and I got something to do with that. I'd say that's pretty good karma as well. Love it. I'm excited to see it come out and to see how it unfolds for you. Now for the moment all the listeners are waiting for what is your commercial real estate secret? It's not my commercial real estate Secret is not sexy at all.

25:52 I think the secret is what I said at the very beginning. Think about what value you can bring, not what you can get. And that can be as easy as if you have a deal and you're looking for a partner and you want that partner on your deal, right? Well, if you're thinking about it from your lens, you're going to send them the deal. You're going to be have your fingers crossed, hope they open it, hope they read it and hope they give you the money that you're looking for. But if you're thinking about it from their lens, you're going to research them. You're going to see what type of real estate they invest in. You're going to see how much money they like to invest, where in the United States they like to invest, how long they hold the real estate. You're going to make a real effort in looking into what their needs are.

26:45 So then think about if you go from it from that vantage point and then you send a deal to them and you've broken out the deal in an e-mail in like 6 easy points that all touch on hot buttons for them. Hey, such and such. I have this deal in Georgia and I know you really like this market. I saw that you did XYZ deal here and you know this is going to be a, you know, half a million square foot industrial warehouse. You know, just like the deal that you did across the street that was, you know, 250,000 square feet. It's within your parameter in terms of deal size. You know, it's a value add play in the sense that you develop it and then you sell it. So it's a short term hold notice. You like to do a lot of merchant build that play versus just sending out.

27:35 And I can't tell you how many times I've gotten just a random OM offering them a random or a deal. It's just an attachment and like it this is, you know, this is like a mobile park site. Like we've never done mobile parks in our life. Mobile parks are amazing, but we've never done it like so. But if you think about the value that you can bring versus what you can get in any scenario, in any scenario, your your productivity and your success will be 50 times over what it would be if you're just thinking for yourself. Very full circle to where we started. The more you give, the more you get. It's as simple.

28:17 Nick, for the listeners who might want to learn more about your family or your product or submit a site that's well researched, where can they find you following, etcetera. That's well researched. That's a good point. So my social is Nick G like George, but it stands for Gerard Sansone. SANSONE. And then information on the course is at nickgsansone.com. Nickgsansone.com Nick, thank you for being on the show today. I I really appreciate you making the time to chat with us.

28:58 And for everybody listening, we'll see you next week. And that's a wrap for this week on commercial real estate secrets. If you found value, do us a favor and subscribe, leave a review and share it with a fellow commercial real estate lover. For brokerage services or to connect, visit warehousehotline.com. I'm Aviva. We'll see you next week.