Behind the Headlines – November 11, 2016

Behind the Headlines – November 11, 2016


(female announcer)
Production funding
for Behind the Headlines is made possible in part by.. – The real estate market and
the local economy tonight on Behind the Headlines. [theme music] I’m Eric Barnes, publisher of
The Memphis Daily News. Thanks for joining us. I’m joined tonight
by four members of the real estate community. First up is Hank
Martin from NAI SAIG. Thanks for being here. Andy Cates is with
Colliers International. Thank you for being here. Shawn Massey is with The
Shopping Center Group. Thanks for being here. And Les Binkley is with
Boyle Investment Company. So each of you, you guys have a
little bit of overlap but you cover the retail, multi-family. Not retail. Multi-family. You cover retail. We’re going
to have you talk about office
and industrial, too. And Andy, you
focus on industrial. And I wanted to show not just to
kind of go through the specific projects, although we will, but
also as we had a forum recently. A number of you were there. And one of the keynote speakers
was talking about it and he had a much better phrase
than I’ll have that, you know, real estate isn’t just
about the deals you do and the buildings you build but it’s
also a reflection of what’s going on in the economy and how
strong the Memphis and Memphis area economy is, what trends are
going on nationally in terms of how people buy
things and sell things, and where they live and
where they eat and so on. So, it’s not just
about the deals. But let’s just start generally
and I’ll start with you, Andy. The biggest.. You’re focused on industrial. The kind of biggest trends
you see right now locally, the biggest projects you’ve seen
now or that are coming online and so on. – One of the biggest projects
coming online is TBC’s building in Fayette County. It’s a million-and-a-half
square foot building. It’s the largest building built
in Memphis in my memory in 20 years in the business. The most unique thing about
what’s happening right now in our market is a lot of
folks are trying to get here. A lot of developers are trying
to get into our market and compete with the same guys that
have been doing it for the last, gosh, 20 years. Prologis, Hillwood. – And these would be bigger. Just for people who are
not as familiar with this. Much of this is
logistics, distribution, that kind of thing, correct? I mean, when you’re talking
about a big building in Fayette County, it’s really a big, boxy
sort of building that’s shipping and things coming
in, things going out. – It’s a 36 foot clear building. That one is full of tires. The e-commerce boom is
going to happen in Memphis. Target came here last
year in 900,000 feet for an e-commerce facility. And several other folks
are trying to figure out their footprint. Memphis works well for that with
FedEx obviously and just being the time to get products out. – When people hear about
Nike being a big employer here, it’s not that they’re
making the shoes here, it’s that huge distribution
facility they got in North Memphis. – That is one of five
that they have here. – For people who aren’t as
familiar with how that works when you talk about these
big industrial buildings. We’ll come back to some of that. Let’s go to you, Hank. In terms of the office sector,
probably the biggest one that’s got the biggest headlines
certainly is ServiceMaster moving Downtown and all that. But that and we’ll talk a
bunch about ServiceMaster. But that and what
else is going on? – Well, there’s a lot going on. You’ve got the unique thing that
you’ve got today that you didn’t have a few years ago in the
Memphis market was there was only one market. There was the East
Memphis office market. The other markets
were lagging far behind. You’ve got about nine million
square feet of space in the East Memphis market. And the market itself is only
about 19 million square feet. So, what’s unique today that’s
different is ServiceMaster. ServiceMaster decided to go
Downtown in 300,000 square feet. They’re going to
have 3,000 employees, 1,200 of their own. But, you know, it’s a
huge impact on Downtown and revitalizing not only Downtown
but an old retail facility that, you know, has been down there,
did not do well at the time, would have probably done well
now but it’s being repurposed for an office building. Same thing with Crosstown. Crosstown, of course, it
falls over into a lot of the properties — multi-family,
retail, and office. But that was a 1.5 million
square foot building built in 1920-something to 1965. Like Andy said a minute ago,
the largest building that’s been built in recent history, and
I’ve been in the business for 25 years, 1.1 million square feet
of an industrial building today. That was a 1.5 million
square foot industrial building in 1965. Huge. So, to take a building like that
and repurpose it with office, to take a building like the
Belz building and repurpose it, in the markets that are
not our traditional markets. That’s the huge part. – And we’ll come back to a
number of those projects and go a little bit deeper. Because you hit
on a bunch of themes that I want to talk about. But let’s focus on
multi-family right now. That has been really strong
coming out of the recession and the housing bust. You know, there’s a lot
of talk about people. Millennials particularly
don’t want or can’t qualify for a loan. The lending
standards are different, at least they are for now. But what are you seeing in
Memphis and in terms of trends in multi-family? – Well, that’s driven nationally
by the homeownership rate getting down to about 63%. And a lot of that with
some decent job growth and preferences to renting is
driving all this multi-family activity, whether it’s
nationally or locally. So, locally we’ve had a spike in
construction this year above our normal 1,700 units a year. We’re right at 2,000. Don’t think that’s going to get
too high but it should subside. But I feel like just generally,
the rental market is strong just due to renter preferences. – There are lots of projects. We’re not talking just
specifically about projects you guys work on, which you’re
nice to do so we don’t turn this into a commercial. And I don’t know where you guys
are in terms of Downtown stuff. But there’s a ton
going in Downtown. That’s a national trend
that Memphis has reflected, right? Even Baby Boomers who
want to downsize are moving into Downtown. – Downtown has been really hot. Henry Turley
has led the way with a lot of
multi-family construction. And so, that will
continue to do well, especially with the
ServiceMaster move that Hank mentioned and more
job creation Downtown. People are more
apt to live there. – So, we get to retail. Retail covers everything from
the Nordstrom’s that’s going in to a local, you
know, restaurant. I mean, what are you seeing here
that maybe is new or what trends are going on? – It’s really kind of a national
trend to have what we call diner-tainment. The whole retail
experience is changing. People are not shopping. They can shop online,
go through e-commerce. But they want to go
to bricks and mortar. And that bricks
and mortar is growing but it’s changing the way. It’s a lot more
bowling alleys, trampoline parks,
restaurants. That shopping
center that we saw in 1965 is
totally different today. That’s what Hank was saying a
little bit about Peabody Place. If it was set
into Downtown today, it’d probably be very successful
because that’s what we’re trying to build. They were ahead of their
time but they didn’t have the residential population Downtown. From big projects, we got Ikea
that’s getting ready to open in early December with
330,000 square feet. We have Crosstown, which is
only a very small portion of the building is dedicated to
retail at 65,000 square feet. – But it’s an important part. People live there. They’re going to work there. They’re going to be
able to shop there. – It’s an amenity
to the building. It’s the urban village. But the retail that’s going
into Crosstown is very much to support what type of
offices went in there. They waited and held off on
the retail to determine who was going to be in the building. Then we can get retail
that services that area, plus allow retail to
grow organically around the neighborhood. – So, we talk about
mixed use is partly what you’re talking about. And so, you know,
there’s Highland Row, Highland Strip. I don’t know who at the
table is or isn’t involved. But those kind of developments. I mean, do you
think they’ll be.. Part of what’s interesting
about that or maybe different, and I’ll look at you, is there’s
a whole dense kind of area of people being
able to eat and maybe a little bit
of shopping live nearby. But that’s different than
this idea of kind of sprawling suburbs with
sprawling, you know, strip centers and so on, right? I mean, that’s a
trend nationally. – And it’s happening here with
the Highland Row project and it’s Downtown. Downtown in and of itself
is a walkable neighborhood. You can see it out in
the suburbs even with, like, Schilling Farms having
more horizontal mixed use where people can still walk to
services and live, and work. So, I think
regardless of context, a kind of an urban
concept is going to be prevalent
moving forward. – At the forum that
we did, the seminar, and you brought up e-commerce
and it was Josh Poag from Poag & McEwen. Is that right, Poag & McEwen? Okay, Poag Lifestyle Centers. And he talked about what was
kind of fascinating to me and kind of hits
everyone at the table, and everyone in Memphis, is a
big distribution center that while e-commerce
is huge, Amazon, and then Apple, and
Wal-Mart and so on, that for some
retailers, they’ve said, well, traditional retailers, I
think he used Bloomingdale’s as an example. They’ve closed stores
thinking they would go all in on e-commerce and actually not
having that local presence then hurt their e-commerce business. – That’s a very big part of it. The e-commerce, despite
its growing exponentially, still accounts for less
than 15% of total shopping. Fifteen percent. I mean, it’ll grow to 20 but
we’re finding that even the e-commerce stores,
Warby Parker, are all adding bricks and mortar stores. Amazon is going to
add 200 grocery stores, Amazon grocery
stores, bricks and mortar. It kind of goes together. You have that growth in
e-commerce but you want, people want to touch stuff. They want to feel stuff. They still want that
shopping experience. And that affects the industrial. Because several that we’ve
talked about on the e-commerce, Five Below, Target, are adding
these big gigantic warehouses as fulfillment centers. And the stores become kind
of the experience showcase for them. So, you do have the Macy’s
and everybody who were closing stores saying,
hey, wait a second. We’re making a mistake. We need to have our
customers come in. They’re just going to be smaller
stores and very different stores, kind of like
an Apple or a store where it’s very customer driven. – You talked a little bit
about this when we talk about e-commerce. We’re going into
the holiday season. And even just the challenges. Again, getting away from
this being narrowly about real estate, the
challenges of hiring. So, you’ve got the huge Williams
Sonoma which does a tremendous amount of business
this time of year, some other people. That’s been a challenge in
Memphis is to get enough workers for these jobs. Your thoughts on all that? – So, I don’t know that it’s
just a challenge for Memphis. I mean, I think it’s a
challenge everywhere. To find enough
labor force, I mean, FedEx was talking about 3,000. Williams Sonoma was
talking about 3,000. Some other local third party
logistics companies were talking about two- and three thousand. I mean, that is a
whole lot of people. Just think of screening that
many people before you can even get them in the building. That’s part of
the challenge, too. I think it’s a challenge all
over the country for these distribution centers. – One thing that
Neil Golden, who was.. it was interesting to
hear him talk at our forum. He represented ServiceMaster
in the move Downtown. It was interesting to hear
an outsider talk about it. We have a better article online
but I’ll just relay a couple of things he said. He said Memphis and
Tennessee, Shelby County, the government delegation did
this amazing job that because everybody wanted ServiceMaster. And there was a lot of
money and a lot of incentives. And they had, I mean, the word
on the street was ServiceMaster is going to leave. And the city, and government,
and the economic development officials got in kind of late
but managed to convince them. Neil, think, seconded that. The other thing he talked about
was this fight for talent in terms of how they hire IT
people and kind of remake. ServiceMaster
remakes its business. That’s a big deal in terms
of attracting people to their headquarters. And Millennials and IT people
don’t necessarily want to be in a rambling suburban
style office space. And I’ll turn back to you, Hank. I mean, ServiceMaster is
obviously a huge example of that with the number of jobs and the
kind of dramatic move Downtown. But to hear about these new,
kind of shared workspaces and what attracts Millennials. And they can go live
Downtown, and play Downtown, and be in this kind of
cool office space Downtown, do you see other companies
going in that direction. – I do see some other
companies going into it. Before the show, we
were kind of talking. I think it takes
a unique company. It needs to be a big
company, like ServiceMaster. One thing that I’ll go back a
little bit on is Fred Smith said this many, many years ago. If we’re going to compete on a
national level for the talent that’s coming out of the
colleges and the universities today, we’ve got to
give them the amenities. Not just a work, live, play. Not just.. We’ve got to give them the
amenities like the Grizzlies. And this was even before
the Grizzlies were here. And so, I think the one
thing that Memphis does have is Memphis has a unique situation
with the environment we’re in, the location we’re in. And then you taker
Midtown, Downtown, and those areas, and we’re
20 minutes from anywhere. You go to Atlanta,
you go to Dallas, you go to Chicago, New York,
even smaller cities than that, and it takes an hour or an
hour and a half to get to work. And that’s just one way. So, you’re spending two or
three hours of your day. That means more I
think in those towns. Here the amenity we have
probably is you can get anywhere in 20 minutes. I mean, for the most part, from
Collierville to Downtown on 385 is like a 35 minutes drive
and it typically doesn’t have a lot of traffic. So, I think our amenity is
Memphis itself and then growing these other areas. Like I said, Downtown and
Midtown have not grown. Not they’re growing. – I had a friend who recently
moved from Tulsa to Atlanta. And he said, you know, forget
about using a map because you think you can go to Whole Foods
or the grocery store and get some food and come back. No, you can’t. You just can’t do that
at certain times of day. And he’s in Midtown, the
Midtown area of Atlanta. Talk about amenities. I saw you speak briefly
at another event recently and you talked about.. It was about the Greenline
and Shelby Farms and so on. And you talk about it as
essentially an economic development issue and
a recruitment tool, right? – It goes back to
what Hank was saying. I mean, you look at what
they’ve done at Shelby Farms. You look at what
they’ve done at Overton Park. What Keith Cole is
doing with the Wolf River. I mean, that stuff is what
is an amenity to the city, that is an amenity
to retain talent. It’s an amenity to Millennials. It’s an amenity
to people like me. I’m not a Millennial. I might be close but I want my
kids to go out and cross the river and
understand how cool it is. And I think that stuff is really
a tool for people that come to Memphis to tell them that story. On top of what Hank was saying,
it’s not we can get anywhere in 20 minutes. We have great infrastructure. But it’s inexpensive
to do business here, too, in the grand
scheme of things. The land prices in Memphis are
nowhere near what they are in most cities. – Inexpensive to live, too. Look at IP and
now ServiceMaster. They go look at
these other towns. The same house here in Memphis
and the same amenities you have here in Memphis are much less. – Construction
costs are far lower. I deal with a lot of retailers
that are looking at Nashville but they go in and say, okay. First of all,
can’t find the site. Second of all, they
do find the site, it’s all covered in rock. The costs of coming in and
building their building are a lot higher in those other cities
where we’re trying to tell them. Say, hey, come to Memphis first
if you want to make entry into Tennessee. Memphis has got abundant
land, lower construction costs, and we have space available. – I saw a peer of one of yours
and I won’t say who it was. But I was having
lunch with him recently. He said that they… And all of you guys do work
outside of Memphis or your companies have, you know,
affiliates and so on in other cities. That Nashville.. I mean, you drive into Nashville
and it’s striking the number of cranes that are up there. But the costs and the kind of
fear of a bubble because I think all of you would agree that real
estate people don’t know when to stop. You know, they just
don’t know when to stop. And so, Memphis is far
from having a bubble. I’m sure there are a lot of
people who would like to see it a little closer to a bubble. But let me ask you. I mean, we’ve talked a lot about
Downtown and people moving in Downtown. But there’s still a
lot of projects going out in the suburbs. There’s a lot going
on in Germantown, which is a suburb that’s kind
of trying to reinvent itself. It’s not all just about
Millennials and it’s not just about, you know, urban
core kind of development, right? – Right. I mean, really just going back
to your comments on Nashville. It’s really all about
jobs and job creation. Because that allows
other things to happen, apartments to be built,
retail buildings to be built. So, as Memphis moves forward,
working on job creation is totally key. But related to what’s
going on in the suburbs, yeah. Germantown, our closest
in suburb, is landlocked. And they’re trying to cultivate
ways to increase their tax base. And so, what they’re doing is
they’re recoding certain areas of town, adding density so
more development can take place. So, that’s what
has been happening. – Tell people who don’t follow
that and aren’t as close to it. We were at another thing
with the Mayor of Germantown. Well, he happened to be
sitting, talking at a forum that Urban Land Institute did. Talking about density and
the way that zoning codes are, particularly in suburbs, were
that you could have a lot where a house would be, it had to
be really big and had to have a lot of space. And then if you were
going to have apartments, you had to have a lot of parking
and then you would build the apartments kind
of behind a berm. Then there’s a parking lot and
then there’s where people live. What Germantown is trying to
do is reinvent what you said, its code and its
zoning, to change that. – To a walkable,
mixed-use environment. – They call it Smartcode but
you’ve seen a trend across the whole country of
urbanizing the suburbs. I mean, through
their smart growth, they’re allowing
higher FAR ratio, which is floor air ratio
to put more retail on. The codes of the past
try to separate the uses. Office over here,
retail over here, apartments over here. Now say, hey, let’s
put them together. People want.. – Which is funny. And again, this
presentation we were at, this very academic. I mean, it was really
high minded stuff but it was really cool. And he had a British
accent, so he sounded really, really intelligent. But he talked about how cities
were originally mixed use. You walked down the street. You lived here. You maybe shopped there. There might be a little workshop
or factory kind of place there. And then your house. And they’re all
jumbled together. And that worked in
Paris for hundreds, and hundreds of years. It can work here. – In Crosstown,
they have a mantra. Everything is better together. And that’s just the
idea of people live, work, and play. – We got about ten minutes left. Shift a little bit to all
the kind of projects we’ve talked about have.. Well, not all of them. But many of them have, and we
talked about it a lot at this table, about public incentives. PILOT, you know, whatever it is. Somehow there’s
a public incentive. And, you know, ServiceMaster,
big public incentives. It was notable that
the guy who represented, Neil Golden who
represented ServiceMaster, I think I asked
him the question, you know, how
important was that. It’s very controversial. A lot of people say, look, if
you can’t do a business or a project on your own,
it shouldn’t be done. He said, look, if you’re going
to have that point of view, you’re going to lose
projects like ServiceMaster. Maybe it shouldn’t be so
but that’s the way it is. And it’s the thousand jobs
and all that economic activity. He also said an
interesting thing though. He said it’s not just
the highest bidder. I thought that was really
interesting that it wasn’t just that Memphis and Tennessee
came with the biggest package of incentives and
that sealed the deal. He said, frankly, we could have
got a lot more money if we had moved. But the role.. I’ll look at you, Andy. It’s controversial. It’s political. But, I mean, a certain number
of deals I’m sure you do or are involved in, they involve
a certain amount of public incentives. There’s a lot of stuff in the
distribution and logistics going on in Mississippi. People say that they are killing
Memphis and Tennessee because their incentives
are so much better. So, all those jobs and
investments going on down there. Your thoughts on the role
of public investment or public incentive. – Well, I think it’s
Memphis is not unique. When they compete
with another market, that city is
giving incentives, too. If everyone would
just stop doing it, maybe it would be
easier for everyone. Like, if everyone
just said, hey, I’m cool, we’re good. You know, let’s stop doing it. That’s not going to happen. They’re going to be very
competitive to try to pull businesses and
expansion to the market. And we’re not different. – I mean, it’s one of the areas
where I don’t know how long it’s been since a new.. As much as this is
America’s distribution center, it’s a long time since a new
distribution center was built in Shelby County, right? Investment is really
happening down there. – You know, I guess one thing
that I say different to Andy is it’s no different. It’s all over if a
company is looking.. ServiceMaster looked to
move all over the country. So, when they looked at Austin
and Chicago and all these other cities and
counties and states, yes. Here in Memphis, there is one
thing different that many places don’t have. When Memphis
competes, the MSA competes, it actually competes
with Arkansas’ incentives, Mississippi’s incentives,
and Tennessee’s incentives. So, the answer is yes. Has any distribution
been built in Memphis? There’s been some. But the biggest
issue is how do we, as a community,
Mississippi, Arkansas, and Tennessee, how do we come
together and get the business instead of, you
know, going out there. I think that’s the
point is Mississippi.. Well, I wouldn’t call it
stealing because we’re one. I’m good with it
going to Mississippi, Arkansas, or Tennessee. It’s just it’s a different
animal if you go to Nashville, if you go to Austin, there’s one
economic incentive package put in front of you. If you come to Memphis and
MSA, it might be Mississippi, it might be Arkansas,
and it might be Tennessee. And they’re all different. Income states versus
non-income states. – But should the
incentive package be different? It’s been somewhat
streamlined and under EDGE. – They’ve worked
really hard to do that. I think the local
EDGE board realized, okay, we’re not winning. We’re not losing but
we’re not winning. And so, we got to
look at our plan. And I think the
key is figuring out, okay, we got a problem. And so, they spent six to twelve
months working together with a lot of our, you
know, colleagues, a lot of people from the chamber
and other places to try to make it more streamlined. And they’re doing that. And they’ve done that and
they’ve got what they now call the Fast Track PILOT. And I believe.. And Hank, you
might correct me here. But I think they have, if you
are to achieve a Fast Track PILOT and you’re to achieve
state of Mississippi incentives, they’re going to marry up
pretty close to the same. – Which was not the
case for a long time. – Which was not
necessarily the case. Now the process is different. And the process is still more
difficult here with the process. But certainty is better of
what you’re going to get which is important. – Your thoughts. There aren’t a lot. In some cases, it’s
not as common in retail, right? – The had the very first
incentive we were granted a few months ago, the Binghampton
Gateway Center at Sam Cooper and Tillman. That was the very first one. The second one was another
project that’s going down by St. Jude Hospital and
the retail point of view. Crosstown
receives some incentive. But that was for the
overall mixed use project. Ikea was most but I think it’s a
lot of dealing with education of the public. In Ikea’s case, I mean, the land
was generating about $7,000 worth of income tax. Now it’s generating
even after the PILOT, it’s going to generate $330,000
annually in income tax or property tax. It’s only dealing
with the incremental. A lot of people get that the
city if writing a check and giving it to them. We’re dealing with
bringing the jobs here, bringing the incentives
here, and we’re dealing with the incremental rise in property
value and the amount of property tax that you pay. It is amenity. – The guy who owns the
hotel next door is ecstatic. – But if you didn’t have the
incentive to bring Ikea or even the Binghampton Gateway Center,
it would not have happened. So, you would have been sitting
there with vacant land not producing any income. – There have been some
incentives with multi-family. Again, not as quite
as common as it is with the big
industrial projects. But your thoughts on that and
then we’re going to move to a different topic. – I think it’s
definitely been needed. And we’ve had them in Downtown
for a very long period of time. And now we’re talking about
Midtown in this 36-month trial period of
incentives for Midtown. – Potentially the first
multi-family or new multi-family in Midtown in a
decade or something. Three or four different projects
that are either greenlighted. – Hopefully those move forward. – We’ve got three minutes left. There was an election this week. I don’t know if
everyone saw that. We’re taping this on Wednesday. So, you know, everything
is moving really quickly. But I do not want to break down
the vote in Pennsylvania or any of that kind of stuff. Although I’m sure that
all of you would like to. But there are,
just at a high level, there are policies laid out. We’re going to go into January. There’s going to be
kind of a super majority at the Federal level. And so, a whole lot of business
impact in terms of the policies. You know, most
likely a big tax cut, big changes to
healthcare and Obamacare. Trade policy that is
kind of uncertain. I mean, thoughts from.. Let’s try to get as least
political as possible from a business point of view. What does it do? I mean, you work. There’s a lot of impact in
terms of all these things that we’re talking about. There’s a lot of trade
that comes through Memphis. There are four or five class A
whatever they say rail hubs. Your thoughts on where we go
from here and how the federal changed could impact. – So, I was a history major at
Rhodes College and I’m a sales manager at a
commercial real estate company. Okay. We all clear? We good? Okay. I think uncertainty is
what gets everybody. Good, bad, or
indifferent uncertainty makes real estate slow down. And so, the more certainty, the
more understanding people have, good, bad, or indifferent, they
know what they’re dealing with. I think that helps our market
if you pull the uncertainty out of it. And that’s.. – And the big uncertainties
in what’s been said. Lots of crazy things are said. So, you don’t know exactly. But there’s certain
things we do know. Thoughts from anyone else? – One thing Andy and I were just
talking about before we got here was, and somebody here with
a better historian than me, Andy, but is I don’t remember
the last time that all three government branches were all
held by one political party. And right now, they are. – I think it was the
first two years of Obama. And right or wrong, just a lot
got done that had big business and policy impact. – So, that to me is something
that’s really unheard of and is not typical. And if it was with Obama,
it’s more recent than I thought. But point being is it’s
very seldom that happens. And I think that’s a big part. – From our point of view, I’m
glad the election is over for the fact that now we can go
back to business as usual. Retailers that were looking to
expand or talking about Memphis or coming in were just saying,
we’ve got to see what happens with the election. Business is going
to go on as usual. We have pent up demand. We have more retailers looking
at Memphis than we have supply and product. I mean, so, it’s gonna be going. Now it’s over. We know what we have. The uncertainty is gone. – Les, we’ve got five seconds. You’re good? Okay, thank you
all for being here. Thank you for joining us. Join us again next week. [theme music]

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