Six Questions for Michael Brennan

CHICAGO-Michael Brennan, the former co-founder and CEO of First Industrial Realty Trust forced to resign in October 2008, has become active in his comeback to the market. His new firm, Brennan Investment Group LLC, isn’t the powerhouse of his prior REIT was, but then, no longer is First Industrial – it’s stock dropped from almost $30 per share in September 2008 to just more than $2 per share in 2009, and has only rebounded to $8.68 per share at Wednesday’s close.

At the time, First Chairman Jay Shidler said replacing Brennan would help improve performance, a claim since disproven. Brennan quietly has built up another team since opening his firm in late 2009, going after industrial properties in the core cities of Central Florida, Chicago, northern New Jersey, southern California, Texas and Washington, DC.

Most recently, Brennan announced a joint venture with Dallas-based TriGate Capital to help fund further acquisitions. The venture has closed its first purchase, a 137,635-square-foot industrial portfolio of three buildings in Austin, TX.

In a private conversation with GlobeSt.com, Brennan says he’s feeling good about the future of his company and the industrial market in general, though he believes new technology may force changes in how space is used and absorbed throughout the country during the next decade.

GlobeSt.com: Your firm launched in October 2009, but it has been somewhat quiet since then. What’s the current plan?

Brennan: We’re looking at the top markets for opportunities. We closed on our first transaction 10 months ago, a regional distribution center in the O’Hare market. We had another deal three weeks ago, a sale lease back in the Milwaukee area, and then there’s the Austin deal.

I’ve been enjoying every minute of it. Our timing is good, and I’m blessed to work with very talented people. The venture with TriGate, these principals have extensive knowledge about the industry, I think together we’ll make a great team.

GlobeSt.com: What’s your take on the current industrial market?

Brennan: From an investment standpoint, I think the industrial marketplace will offer the best opportunity that we have seen in a generation…but it will take a little time. The market has great characteristics, with 26 billion square feet in the United States, and about 65% of it owned by the users. And although we haven’t seen it yet, within the next several months to the next three years we should start to see the effects of an overhang of values, either too high or financed too much, that will result in significant opportunity for the experienced real estate operator.

Finally, I think our rate of space absorption will be much slower than it has been in the past 30 years, due to several factors. For one, our GDP has become more service related than goods related. Two, you’ll start to see the effects of technology being used with material handling, building design and even just-in-time manufacturing or point-of-sale use – this will all bear down and reduce the rate of space absorption.

GlobeSt.com: What’s your strategy to finding this opportunity you speak of?

Brennan: Well, we want to spend our time with sellers who can use our help, where we can bring our redevelopment expertise to bear, or the ability to restructure debt or partnership obligations. Secondly, we’re not going to buy completely commodity-type product, we’re going to look for the types of buildings that service large consumption zones that will attract a wide variety of users.

GlobeSt.com: In this economy, besides build-to-suits, do you believe that there is opportunity to be found in this flat industrial market?

Brennan: There’s always risk and opportunity, whether the reasons for both change doesn’t matter. The industrial market is so large, it’s always bringing forth new opportunity. However, patience is a virtue in this market, you have to be willing to keep the bat on your shoulder. You might go months and months without seeing anything you like.

GlobeSt.com: You talked about being careful of the future of technology – what does that mean for industrial users?

Brennan: The object of the end user, of course, is to ultimately use as little industrial space as possible. With the application of new technologies, you’re going to get less needed industrial space, so you have to be careful of the types of buildings that you buy. The more advancements that are made in robotics and automation, the less labor and location dependent our industry becomes.

GlobeSt.com: You seem to be saying technology will shift how space is used – will it happen geographically, or by product type, or both?

Brennan: I’d say that large bulk warehouses around port areas have more vulnerabilities that people imagine. One has to question whether port property will maintain, will garner the most attention in the future, as technology allows manufacturing to return to American shores over the next decade.

You’re still going to see manufacturing going up around major consumption areas, but it can go up where it hasn’t before, where labor costs may be higher. What I think is likely will happen is that this will call into question the long-term necessity of making investments near sea ports. Technology use in the facilities will impact where they’re built, and how much space is needed, and is sure to influence our business.