20 to 40 Bidders Show Up for Industrial

LOS ANGELES—Finding well-located and developable land sites is still the biggest challenge for industrial developers, and that won't change in the coming year, according to Larry Lukanish, SVP of commercial development and investment at the Sares-Regis Group. Lukanish is speaking on the Deals and the Dealmakers panel at the upcoming RealShare Industrial West conference. Before the big day, we sat down with Lukanish to get his market insight and see what he expects in 2016. His answer: tighter supply and more competition.

"The hardest part of our job is finding the land sites, and a lot of it is broker driven. In an auction process, there could be 20 to 40 people bidding on a site, so it is very competitive to get any new projects," Lukanish tells GlobeSt.com. "In the bidding process, often developers are outbid by users, who can usually pay more than a developer can pay. Other times, we get lucky and find an off-market deal, but those are harder and harder to find."

While some developers and investors are claiming that other attractive deal terms will allow for flexibility on pricing, Lukanish says that isn't the case. Top bidder always wins. "Unfortunately, all buyers go through the same thing. You are well qualified, you have a great track record, you have discretionary capital and you have the highest price," he says. "Some properties will have environmental expertise that you have to bring to the table, and some companies don't have that expertise. We specialize in that, so that helps in the bidding process, but you still have to be the highest bidder. It doesn't matter if you understand the problem better. You still need to get to the price. We wish there was a discount for expertise."

One of the steadfast challenges he sees in the year ahead is the tight supply for both land and product. "There is a lot of capital chasing deals, and there are not a lot of people selling," he says. "Industrial landlords have become more accumulators, and there isn't as much merchant building. Most of the developers today are accumulating assets. I think developers are going to continue to build and hold versus build and sell." 

In the coming year, the company doesn't have any major changes to their Southern California-focused strategy. They will be looking for infill development sites and targeting ecommerce users for occupancy. "We are looking to acquire infill locations if we can and tear down old or build new warehouse distribution buildings," Lukanish explains. "Ecommerce tenants have been the ones driving demand for new buildings. The buildings that we build are pretty much the same; it is just the tenants who lease them that change. The ecommerce guys are stepping up because they might not have the physical presence in stores and they are doing point of sale out of these buildings. It is great that there is another tenant mix leasing our buildings, but it doesn't mean that we are changing any focus. We are just looking for well-located sites to build out buildings."