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Spencer Levy
The industrial sector has been a good bet in recent years, with the rise of e-commerce, an emphasis on innovation and operations, and other developments that have led to strong growth. But are challenges to that growth becoming evident in the market of today? On this episode, experienced perspectives on a sector that has been delivering but is facing questions based on current events.
David Welch
It's just a lot of drama. It's a lot of chaos right now and so everyone's just waiting.
Spencer Levy
That's David Welch, CEO of Robinson Weeks Partners, an Atlanta-based investment and development firm that was founded in 1979 and today stretches across the Southeast and Texas, specializing in industrial. David is responsible for the operations and growth of the firm, including the company's largest development project 15 years in the making. The Gillem Logistics Center, an 1,168 acre redevelopment of a former Army base into a state-of-the-art distribution and e-commerce facility. An ambitious project we'll talk about on the show.
Chris Riley
Are occupiers going to pause? Are they going to contract? Are they gonna just slightly expand? And when does that expansion take place? What do they underwrite from a market rent growth standpoint? What is the consistency of that tenant demand equation? That's what's facing us right now.
Spencer Levy
And that's Chris Riley, Vice Chair of CBRE and a founding member of CBRE National Partners, a platform focused exclusively on industrial and logistics capital markets that was formed in 2010. After 38 years in the business, Chris is about to start his next chapter, joining David as the new chair of Robinson Weeks this spring. Coming up, we sit down at Robinson Weeks' Atlanta headquarters to address recent trends and headline realities in the industrial sector. I'm Spencer Levy, and that's right now on The Weekly Take.
Spencer Levy
Welcome to The Weekly Take. Delighted to be back in Atlanta with our old friend Chris Riley, Vice Chair of CBRE. Chris, welcome to the show.
Chris Riley
Thank you, Spencer. Glad to be here.
Spencer Levy
And David Welch, the CEO of Robinson Weeks. David, thanks for having us.
David Welch
Thank you for having me.
Spencer Levy
So Chris, first, congratulations on the move. What is the attraction of staying in industrial, staying in the business with your next move?
Chris Riley
So I've been in the business, Spencer, for 38 years. That's what I know. And that's why I want to stay in industrial. You know, it's a very simple cash flow business, and it's one that I've spent my whole career trying to perfect. You never perfect anything. So, it's what I know, it's what I do. And they have a great platform here. And I was ultimately attracted to the small, boutique nature of this, the partners that operate this platform, and the opportunity.
Spencer Levy
Well, small, boutique–I guess everything's relative. David, you're several billion dollars. Tell us how big Robinson Weeks is.
David Welch
We know on our fifth fund we've raised over $700 million of equity through those five funds in our Fort Gillem redevelopment project. We generally have 3 million square feet or so under development every year.
Spencer Levy
Under development.
David Welch
Under development. So that rolls from year to year. So that might be, you know, 5 to 6 million square feet at a time that we're actively leasing up and putting back on the market for sale, and then regenerating that capital.
Spencer Levy
So the industrial markets, and I say this with love because you folks are industrial experts every day, has gone through an extraordinary period. I would say through about two years ago, it was by far the best asset class in real estate. There were some markets, Inland Empire I always point to in Southern California, you were looking at rent growth 30, 40% per year. But then the last couple of years have been tougher. It's been a different market. There was a little bit of overbuilding, a little bit of softness in the tenant demand. Tell us about that, Chris, starting with you.
Chris Riley
Well, let's start with the leasing market first, because as you think about the market for industrial, there's two sides of it. There's the leasing market, then there's the capital markets. And so you're right. The leasing market, it was thawing this year until this announcement of the tariffs. And so we have seen occupiers go on pause again. We thought they would accelerate this year and that this year would actually outperform last year. But right now, it's anybody's guess how that will happen and whether or not the tariff negotiation, how long that's going to last. And then how long those occupiers will stay on the sidelines. On the capital markets side, obviously any time you introduce risk into the equation, that's gonna change the appetite for risk from the large institutional investors who drive the market. They can price risk every day, whether it's on the credit side or whether it is on the equity side. They're in the business to look at all the key indicators and price off of that. I know you've had people on your podcast before that can talk in depth about that, but what they can't price or can't underwrite is just that, what's the occupier going to do? And that's a huge part of the component right now that everybody is looking for data points. So that's the hardest thing in the market when you have turmoil like we have today, is not knowing directionally. Are occupiers going to pause? Are they going to contract? Are they gonna just slightly expand? And when does that expansion take place? What do they underwrite from a market rent growth standpoint? What is the consistency of that tenant demand equation? That's what's facing us right now.
Spencer Levy
And for our listeners, you should know we're recording this on April the 8th here in Atlanta. And the tariffs were really announced less than a week ago. And so we're really in the teeth of uncertainty at the moment. David, how do you see it right now?
David Welch
Yeah, I think uncertainty, it's chaos. I mean, going back to the original question, Spencer, last year, we were all waiting for the election. We were waiting for interest rates to come down, and everyone thought, once we get past that, this end of the year, first quarter of this year, we'd kind of be back to our normal lease up. Then we kind of have this shock and awe policy with the government, with DOGE, and then we have these tariff announcements, and so it's just a lot of drama, it's a lot of chaos right now. And so everyone's just waiting. I've talked to a lot of folks that just said, it's not that we are canceling requirements, it's that we're hitting the pause button. We're just gonna wait and see. And I mean, no one's gonna take that leap of faith to go out and sign a big lease right now or buy a big portfolio right now. We just have to kind of wait and see. And I do think this whole tariff thing is more shorter-term than long-term. Chris, you mentioned it's kind of a negotiation. I don't think it's this long term, dramatic shift in the global order for these tariffs. I think it is Trump's way of negotiating, country by country. I think we'll see here in the next few weeks a lot of countries come to the table. I think Mexico seems to be in pretty good shape right now and our other larger trading partners – you know, Vietnam and South Korea, Ireland – I think they'll come to the table. He'll make some deals. I think that'll get some momentum, and then you'll probably have China still out there. We'll kind of see what happens on that. So I would sure think the second half of the year will be back to a little bit more clarity and a lot more decisions being able to be made.
Spencer Levy
Now you have a portfolio in interior ports. So Memphis, I would call that an inland port. And then you have your traditional port areas, the areas along the Carolina coasts. Are you in any way shifting the way you're looking at where to build, where to buy, because of some of these international issues? And I'll just be matter of fact about it. Industrial is the most internationally sensitive of the asset types because of trade. Any changes in your point of view?
David Welch
Yeah. Good question. We focus on the top growth markets population and job growth. Those are the two dominant drivers of industrial demand. I think the port is more of a niche strategy. So we are in Charleston. Charleston, the port is one of the demand drivers there. You've got aerospace, you've got the automobile industry, you’ve got some government related industries. Savannah, we've been kind of in and out of looking at. Savannah would be a more port-driven market. But as of today, we are not in Savannah. That's on our list to go into, but we monitor our markets very closely, and we will pivot when we need to. But we're gonna still concentrate on the Southeastern markets, those high growth markets.
Spencer Levy
And Chris, from your point of view, having gone through this for 38 years, you've seen a lot of disruptions to the market. How do you put this one in context of some of the challenges we faced, from COVID, from the global financial crisis, or otherwise?
Chris Riley
Well, that's a big question. COVID. COVID was a black box. I don't think any of us in this room today have been through anything like that, right? So I don't' think we knew what we were facing. I thought that was a lot murkier and we did not know what the duration is. When we think about tariffs and the negotiation that David just mentioned, you couldn't look at that because that was not a negotiation. A worldwide pandemic is something that nobody here had the capacity to understand and what that would evolve into. Fortunately it’s a lot shorter lived in terms of how it affected the economy and commercial real estate. So we did come out of that sooner than expected and actually it was a V-shaped recovery within the capital markets. Now going back to the GFC and all three of us here today were around and very active in the market then. I don't think we'll ever see anything, and I hope no one will ever experience that again. We were right on the brink of a complete worldwide failure from the financial system. And that was one that was as bad as anything I've ever experienced with all the cycles that we've been through. There's no comparison. And I also think that you've mentioned about the recovery and how well industrial has performed coming out of the GFC, industrial outperformed the other sectors. And I think that started in 2012, it had been underdeveloped for a number of years, it was not oversupplied, it just had a perfect storm. So I think that one was something we've not seen. This is, directionally, I think, we'll understand this. I agree with David, hopefully between 3 and 6 months, we'll know what the direction of this is. I think he will activate on this very quickly. And hopefully, we’ll put this behind us and we will know where we are and how to deal with it.
Spencer Levy
In terms of dealing with it, David, it's unusual that you're building. And it’s not in a bad way, and actually in a very good way. Why are you building today when so many of your competitors aren't?
David Welch
So we just finished 4 buildings, Spencer. So we're in Atlanta, a couple of buildings, Central Florida and Charleston. We have four more on the books programmed to start this year. So we don't have anything actually under construction as of today, other than we're waiting on our certificates of occupancy. But we're gonna look at the markets. We'd like to start some at the end of the year, but we're a smaller boutique sort of firm. We don't have to start developments to kind of keep things going. So we build when the markets dictate to build. And so we'll be monitoring markets very closely. And I do think these markets we're looking at and starting new projects, supply will get burned off. We build products where there's niches. So we're in the kind of the mid to big box markets. I mean, our down the fairway is 300 to 400,000 square feet. We'll do million square footers in certain markets where it makes sense. But that's kind of our breadbasket: multi-tenant buildings. So the 100,000 to half a million square feet tenants are what we deal with day in, day out. The smaller tenants have been the real driver lately. We're starting to see some more requirements for the larger 300 to 500,000 square feet. And so we'll look at focusing on those sized buildings. But again, I think we'll pivot when the markets are ready.
Chris Riley
The tariff negotiations are probably impacting the 500,000 square foot large format tenants more so than the smaller tenants, right? Because those are big capital investments that they have to make, in labor, in material handling, in their transportation that they have to commit to to service the markets that they're distributing to. So, I think that's one of the issues or the sectors that are going to be impacted the most in terms of new spec development and even acquisitions on the risk profile.
Spencer Levy
Chris, maybe let's do industrial Real Estate 101 for our listeners. Let's break it down between the big box warehouse distribution, the 200,000 to 400,000, maybe it's not last mile, but smaller distribution. Then you get into flex, and then you get into other segments. And how do you look at those different segments of industrial from an investment perspective? Because I will say, 15 years ago, flex industrial was a dirty word.
Chris Riley
It's probably dirtier now than it was before.
Spencer Levy
Okay.
Chris Riley
So let's just leave it there. Flex is really not part of the industrial sector vernacular anymore because it's so heavily concentrated with a high percentage of office and the utilization is really not industrial. So if you think about it from that, the functionality and utilization, it's not industrial. And in fact, it really doesn't have a place when we think about the bigger picture. It's somewhere between office and industrial. It's more of a technology-oriented, but you can have a wide variety of tenants involved in flex that are occupying flex, including churches.
Spencer Levy
Now do they sometimes call it small bay or is that something different?
Chris Riley
That's something different. That's what you were referring to. So small bay or shallow bay is light industrial at the lowest level. So those buildings can be under 100,000 square feet and can be 100 feet deep, up to 150 feet deep. So they're very shallow. And as a result, you know, they have appeal to one of the biggest groups right now are subcontractors. If you think about the people who come out and repair your HVAC, install your carpets, your cabinets, those are the people that need that kind of space: subcontractors. And then you move from shallow bay, multi-tenant, light industrial to pure light industrial. And so that's more like 150,000 square feet to 200,000 square feet or 100 to 200 thousand square feet. It's just a little elongated and the building depth typically has a little bit more parking, has more dock doors. It's this bulking it up to a larger size.
Spencer Levy
And who would be the user or the occupier in that 100,000 to 200,000 space?
Chris Riley
It's that same contractor, but they've grown their business. The plumber who now serves the entire marketplace of Atlanta and has six different operations, both for commercial and for residential. It's a flooring company who has 6 studios around town that they're showing to prospective homeowners and commercial clients. And then you move up to the mid-bay size, and that's what David was referring to, which is 250 to 500,000 square feet. And those buildings can be, they can be– they're typically single load, they can be front load, they can rear load, they can even be, you know, a cross stock, but they're smaller format buildings than the super bulk buildings. And that really starts around 700,000 square feet and goes to over a million square feet.
Spencer Levy
Let's talk about how industrial space has evolved. It used to be 24 foot clear height, now it's, is it 32 is the standard? Tell us about how that has evolved from just a structural side of industrial and how technology has impacted it.
David Welch
So if you kind of look at the last 25 years Spencer, from the building size and footprint… You know a 250,000 foot building back then was a large building, and the truck courts were 100 feet to 120 feet deep just for the trailers coming and going. Parking pretty typical, a couple spaces per thousand, and that was about it. And the ceiling heights were 18 to 24 foot clear, so you're racking 3 to 4 high. And then lighting back then was sodium vapor, which were, kind of, if you walk in the warehouse, there’d be buzzing all the time. And then it kind of went to the metal halide, which were kind of the yellow tint. That was kind of how you could tell the era of those. Then we got into the larger buildings. The truck courts got larger because you wanted to have trailer storage outside because your drivers were becoming much more just-in-time oriented. You'd drop off a shipment, you pick up another, and you've got to kind of roll these trailers around. And then the ceiling heights went up to 32 and 36, and now they're 40 foot clear. And again, you can go higher pallets, which require more sophisticated material handling equipment to go higher, so there's more cost and expenses, but they're getting more cubic, wanting to get more efficiency in the buildings. And then the lighting continued to evolve into fluorescent, the T5 and T8s, and now we're LED, and now we have motion sensors. They come on and come off as people are walking through the warehouse. So it continues to change and evolve.
Chris Riley
Part of what has caused the advancement of buildings, and specifically clear height, is also due to the capital stack. Investors want to build not only for the tenant now, but the future tenant. And as they look down the road, they look at it and say, well, we think that the tenants 5 and 10 years from now, the advancement of material handling systems, which are already in place, but they're gonna wanna utilize that full cubic footage of the building. Some still only racks so high and some might even be 4 stories, depending on the weight. But they're building because the capital says I want a building. If I'm gonna own it for 10 or 15 or 20 years, I'm going to build something that will work when I'm looking out 10, 15, 20 years. So think about that. It's not just… The users today, the majority of them, if we're walking in 40 foot clear buildings, we'd probably say, what do you think, 50% are utilizing the true clear height?
David Welch
I think that's true, yeah.
Chris Riley
Think about that. You're building a building that only 50% are gonna utilize the clear height right now. So that tells you that the capital is driving a lot of this, not because the occupiers are coming out and saying that they need it. And I'll give you another one. In a market like Savannah, which is a break bulk market, all that product…
Spencer Levy
I'm sorry, what does break bulk mean?
Chris Riley
All the product comes in through the port, and it's brought into containers into these large warehouses. They take all the product out of a TEU, which is the container.
Spencer Levy
20 foot equivalent unit for our listeners.
Chris Riley
There you go. And then they break it down and then they have to repackage it either on rail or on trucks, right? That product is really not destined to go into racking because it's a turn. They want to get all the product out, they want to put all the products back into whatever transportation they're using and get it out of the warehouse. And so it's much like a last mile delivery station in that you want it out of the warehouse at the end of the day. Some stuff is going to happen where it's going to stay because this is the timing of transportation. But they don't need any racking because they're not trying to store it. Yet you'll still see a 40 foot clear building built in Savannah and the reality is the users don't ever use 40 feet clear because they are not warehousing.
Spencer Levy
I'm gonna go to operations in just a moment, but let's stay with the 40 foot clear today with what investors want. And there's a notable difference in other asset types. So I think one of the beauties of industrial–this is not a knock on industrial–it's cheaper to build industrial, it's cheaper to build four walls with air than it is to build that system, which enables people to do that. But in the other asset type, people aren't doing that. They're not future-proofing. Would you say that is future-proofing? Maybe that's a new word for the industrial space here, Chris, but is that what they're really doing?
Chris Riley
I think that's a big part of what they're doing, yes, because they want a durable asset and to have a durable asset, you've got to think beyond your current occupancy of the trends right now.
David Welch
And because, Spencer, we're speculative developers. We're not building a customized building typically for the build-to-suit market. It's speculative building, so we're “build it and they will come”, right? So it's the clear height, it’s the power, it's the potential office configurations, the potential trailer storage, the potential excess parking, the flow, multiple ways in and out of the building. So like you said, it is future-proofing that tenant to come, and then as Chris said, the investors are gonna buy that. They're paying big dollars for it. They wanna make sure when that tenant rolls and it's the second, third tenant down the road, that that building still works well for them.
Spencer Levy
You mentioned very briefly there, David, you mentioned power. You didn't mention water. You didn't mention access to the highway. What are some of these factors that you're thinking about today in terms of your, not only building of the building, but site selection, that you weren't thinking about 30 years ago?
David Welch
Well, it's a great point. I mean, the old nomenclature location, location, location still matters. Then location with access to the highway system. But you're right. Now it's utilities. And you mentioned the power and water where we never had to really worry about in the past. I mean, particularly we're here in Atlanta, Georgia, and Georgia is a state that has a ton of power and that never was an issue. COVID hits and suddenly just the transformers to get those ordered in time, we had a huge delay on those. We had to kind of almost order them ahead of time and stockpile them for our next set of buildings. And then water has traditionally not been an issue for us, but with all the data centers that are coming in and sucking up the power and the water, we do have to be very mindful of that. And before we close on a piece of property and get it entitled, we want to make sure we have will-serve letters from the local jurisdictions that they will provide us with power and water, and that's a more critical thing now that we have those in our file before we close.
Spencer Levy
So, to put it in the vernacular, your job's gotten harder.
David Welch
It’s gotten much harder.
Chris Riley
I agree with you. And one thing I want to mention on what David was talking about that did not come up, but David, I know you consider it, is less prevalent in the Southeast in the markets that Robinson Weeks is in, but are CUPs, and they are overlays in certain markets.
Spencer Levy
What's a CUP?
Chris Riley
Yeah. It's a CUP's: certificate of use permits. That is a zoning overlay that the county or municipality will come in and enact on top of what your original zoning is. And in the case of California, using them, because there's a lot of those out there in Southern California, it's environmental justice driven, because they don't want trucks, the majority of trucks on the market on the roads, in their neighborhoods. And so they enact these to limit the type of user, occupier in their buildings. And what they're looking for are users that are light industrial, light assembly, technology-focused, job creation, higher paying jobs, not as trucking intense. And so it is another layer of zoning that restricts their ability to have truck traffic, warehousing, distribution, and logistics. So when you were talking about how difficult the market is, think about that, that you're projecting 10 years from now, and in the case of California, a lot of these buildings, they've had the zoning in place for 15 or 20 years. The municipality came to them and enacted through their city council or whatever the government jurisdiction is and said, we're gonna put a CUP on you. And now you've just eliminated 50% of your occupier market or greater. That is a huge risk in the market today.
Spencer Levy
So let's talk about that for just a moment. So, it's one thing to talk about new, modern facilities, 40 foot clear, access to water and power. What do we do with the older facilities today, Chris?
Chris Riley
Well, one thing you did not mention–We talked about 40 foot clear buildings and why it's so important to build those buildings is because you can't take the roof and elevate it by 4 feet or 5 feet. It's not economically feasible. And because of that, that renders a lot of that stuff functionally challenged or in some cases functionally obsolete. So we've seen a lot of those buildings convert into what are now more light assembly, like manufacturing. And they can have technology uses and other applications that are not necessarily just pure warehouse and distribution. That's the changeover you see when you get in infill markets, in areas that have nearby labor. It's a different makeup of the type of tenant. And that's why, I like a lot of purpose-built real estate, using manufacturing as one, because I know you're a big believer in rehabbing manufacturing buildings. They're so specialized, so purpose-built, that they don't have that generic framework that plays into the deep and broad part of the market.
Spencer Levy
Well, I'm glad you brought up manufacturing and–
Chris Riley
I know it's one of your favorite topics.
Spencer Levy
It is one of my favorite topics, but you know who doesn't like manufacturing? Real estate people, because it's expensive to build, purpose-built. What happens on the exit? It's often in secondary markets. But we've already crossed the river sticks into data centers, because we think this is the next great thing, and we're triple net leasing these to great credit tenants. Why can't we do the same thing for manufacturing? And I'll tell you why we should, because right now, the spread you can get on manufacturing are over a hundred basis point wide of where you can get it for data centers, maybe more. And if you're going to get the same triple net lease from the same credit, why not do it? Why not do it?
Chris Riley
And that's a really good question and one that requires a lot of thought. I would give you this answer around why we don't see that market evolving on manufacturing buildings. If I was going to create a platform to go invest, I would want to hire the engineers and the contractors from a design-built construction company, like a Bechtel, that does all of this in-house. There's no telling how many manufacturing buildings that they have built. They could also then understand what's the reusability of those assets long-term? What has that intrinsic and long-term operational value? Because they're doing this for new tenants, new occupiers, and they're traditionally owner-occupied. It's more of a financing game than it is having a landlord as your tenant. You really just have a creditor that's owning the building for you, right? And so that's the part we just don't bridge because we don't know what is reusable. And there's really one group and it's a big, really big design-built contractors who understand that and can look at the lens and say that building right there with some fine-tuning that is economically feasible, we can make that building work for another manufacturer and what does that play to. What type of manufacturer? But I've never seen anybody look at it, kind of a reverse lens like that, and come about it to where you can figure out what's the feasibility and the economics around it.
David Welch
I’ll add… we are delivering our typical box and we have manufacturing, I'll call it more light manufacturing, light assembling. I'm not sure if you're going in that direction or you're talking about your traditional heavy manufacturing sort of, but we have several users that are coming in and adding. We have a group in one of our San Antonio buildings that's taking powdered plant-based milk products and adding the liquid, boxing them up, and they have their first two lines in. They're gonna grow to six lines, and I call that manufacturing. Now they're taking their own capital and building out the space. We're not doing that. We have another building in San Antonio, same thing: a large restaurant that is bringing in their packaging and freezing the materials, and they put in 25, 30 million dollars into one of our buildings to do all that. So, that is existing, maybe not to the level you're talking about, but I think we'll see more and more of that in our traditional boxes that are doing more of this light assembly and light manufacturing.
Spencer Levy
Let's talk about fundraising. Again, we are recording this show on April the 8th, and we're seeing everyone from those who think it's a great time to invest to those who are hitting the pause button. How would you describe it right now?
David Welch
Chris, why don't I start off with kind of what we've done to raise, and then you can talk more of the bigger picture. But for us, Spencer, we raise our capital through private equity real estate funds. And the first fund we had, we had a mix of institutional investors and then high-net-worth and family office. We wanted to be more flexible and niche, and so we said from the funds going there forward, let's not have the institutional investors. Let's stick to our high-net-worth and family office, which gives a lot more flexibility. That group has stayed with us from fund 2 through our current, our fifth fund, and they've been loyal to us, they will continue to do that. And we raised our last 2 funds a little over a year ago. We've been out talking to them over the last couple of months. They are all very interested in continuing our next couple of funds. And even the last week, we've been out talking to folks. I think just with the stock market as volatile as it's been and with interest rates jumping around that real estate is still an asset class that is favored, and I would say, would be a great place to put your money into. I think there's just going to be a lot less of the ups and downs and these huge market swings right now. Now you do have to be comfortable having some illiquidity because you can't just turn and say, sell a building, I want my money back. But you will get paid for having that money stay illiquid for a while, and our track record of funds have proven that to be the case.
Spencer Levy
And Chris, how do you see it? How do you see it evolving?
Chris Riley
Well, I think we're on pause right now, but I think leading up to the tariff announcement that we were seeing two things happen. One, there's been a better rotation of capital. And to raise capital, you have to repatriate capital to your investors. So ‘22, ‘23 were pretty anemic in overall sales for all sectors. ‘24 was an uptick, over ‘23. I think we can call the bottom now 2023. So with that rotation of capital, I think we're starting to see an acceleration of fundraising by the institutional investors. I also think that, given where we're at, the institutional investor is going to pause and just look at where the market is changing from a commercial real estate investment standpoint. So there's no rush into it. So I think they're going to really look at this as a time that they can, they'll probably take their foot off the accelerator.
Spencer Levy
Fort Gillem. Tell us about the project.
David Welch
Well, Fort Gillem is an Army base located just next to the Atlanta International Airport, just outside of Atlanta in Forest Park, Georgia. That was on the 2005 BRAC list, the Base Realignment and Closure List, to repurpose these old military bases. Our firm got involved in December of 2007 as a master developer. 1,200 acre with five million square feet of old army buildings that were all put up in 1941 that was used as a maintenance and warehousing depot during World War II, and the Korean, and Vietnam, and Desert Storm was kind of the last campaign. So over the last, that's almost 17 years now, we have repurposed that to really demolish–we looked at retrofitting some of these buildings, but they just wouldn't work. And so we–I spent 7 years through the entitlement process and environmental cleanup and regulation and negotiating with the army. That was kind of on the front end of the GFC, so we had to re-plan that multiple times, re-master plan it. But it's been transformative for that community. We could go on for a long time about this, but Clayton… It's in Clayton County, but Forest Park had a third of its tax base in that 1,200 acres of the Army, which is not taxable, another third of their land base in the state farmer's market, which is non-taxable. And so it was just really passed over from a development perspective. And as Atlanta grew over the last 20 years, it was really left behind. So it's been transformative to take that base. And now we have 7 million square feet of Class A regional distribution centers with the likes of Kroger and Home Depot and Cummins and Boeing. And it's just a who's who of tenants. But there was a lot of sleepless nights on would lenders finance a base that had activities on there like that? Would tenants come in and sign leases to do that? Would the capital markets go into a retrofitted army base with the prospect of, you know, there's all sorts of buried stuff out there that no one knows anything about. But we like to say that in that era of closures, Fort Gillem is the top base redevelopment project as far as replacing the… We've replaced 5,000 jobs from the 2,500 that went away when that base closed. So it's been a great success story. A great part of my career to be involved with.
Spencer Levy
When you got into this deal in 2007, you were awarded the deal. First of all, how were you awarded the deal? And then when you woke up the next morning, you say, Oh my God, what did I just win?
David Welch
Yeah, we competed against seven other firms, you know, some of the top tier companies in the business and the industry. So we did win that, fortunately, and the key lessons learned was you have to have a flexible mindset from everything, from timing to financing to what kind of product you're gonna do. This had a rail running right through the middle of it. When we first saw it, the iteration was we'd have a lot of rail users in there. Made sense, right? We'll put a lot of little buildings. Then Kroger comes along and wants a large campus, which we did say, we'll think we'll get a large user like that. They didn't want to use a rail and they wanted to put their building smack dab in the middle of that rail. So we had that big decision to make with the community and we did a great public-private partnership with the city of Forest Park’s redevelopment authority. But that was a strategic decision on, we have to abandon our rail strategy if we're gonna take Kroger. But Kroger was a great kickoff. We had a tax abatement program for them. We took that annual income stream from the tax abatement program, they had a payment in lieu of taxes to create a bond, which then financed all the infrastructure. So we did get all new utilities, all new roads. People realized these bases were all private government, federal government standards, and their own private utility system. So we had to abandon all that, bring in all fresh new stuff. And then we talked about the GFC in the middle of all that. So no one was gonna lend money on that. So we went back to another whole new master plan. So, yeah, I got asked, if not one time, a hundred times, so how are you gonna make money on this again? And what are you going to find when you dig up that first? And so a couple of funny stories on that. We did, you know, what did we find when we dug up? We found a lot of old 55 gallon grain army paint cans that we had to dig up and haul away. We found thousands of rubber boot heels in a spot, but, you know, fortunately there was no unexploded ordinances or any terrible chemicals or things like that. So it's really been, it's been a great project and transformative, now, for the city of Forest Park.
Chris Riley
Speaking of making money at Gillem. So CBRE has been very fortunate to represent Robinson Weeks on the sale of their stabilized assets in Gillem. And I can tell you that on all of those sales, relative to current market values when those assets were sold, that they achieved the highest price and lowest cap rates in the market, which speaks volumes to those assets. Not only the first iteration when they...
Spencer Levy
Highest price and…?
Chris Riley
Lowest cap rate…
Spencer Levy
Lowest cap rate
Chris Riley
… in the market. Yeah. And not only did they achieve that on the first sale, but some of these assets have now traded a second time, because the holding period for the original investor was 5 years or so. And they’ve, again, they've always carried that same productivity in terms of that combination of price and cap rate, so it speaks volumes for that park.
Spencer Levy
Is there anything that you did differently that you would recommend to others? Anything you did at the beginning that you say, we'll never do that again?
David Welch
Well, that's a great question. I think, as I mentioned before, we had to–there was so much unknown, so much risk, so much potential capital to spend that we learned very early on, after we had spent a lot of legal dollars just to figure it out and get all the documentation, is we had a structure something with the local development authority of, guys, you need to give us time, you need give us some options on taking down some land. We need to build momentum, but we can't be handcuffed. And so we were able to work out a pretty flexible terms on taking land over time. We wanted to build buildings sequentially and to make sure there was product available. And so I think that's just the… you need to have a great partnership that's a give-takes a relationship to make it work, and then be able to pivot when things change. So we did change that agreement over time to meet market standards and to work for both of us.
Spencer Levy
Great. Great. So we've been speaking now for about 45 minutes, and we're talking here on, again, April the 8th in Atlanta. When we're talking about industrial over the last decade, it was probably the number one performing asset type in real estate. It's gotten softer in the last 2 years because of a little bit of overbuilding. Now we're talking about tariffs and other things that are restricting some tenant demand. But there are other threats out there. What would you say, Chris, is the biggest threat to industrial in the years to come?
Chris Riley
You know, Spencer, I think the biggest threat right now is the proliferation of trucks, and not just tractor trailers, but all the way down to the delivery vehicles that show up at your house. The same-day, next-day, and 2-day delivery that has proliferated as well for the last 20 years, and Amazon led that charge, has meant that we have seen an expansion of trucking like we've never seen before. And as a result of that, when you go to a zoning hearing meeting, trucks don't have a vote, they don't show up and speak, and you have a contingent of residents and even non-residents that show up to the local zoning meeting, and at that point, you're in a very tough predicament to be able to procure your entitlements. So I think that trucking is a big threat because most consumers, while they like the goods that show up at their house, they don't like how they get there.
Spencer Levy
And David, what would you add to the biggest threats?
David Welch
To add onto that, I would just say to get entitled land for industrial uses. I mean, that kind of goes with this whole not on my backyard attitude of neighbors that don't want trucks running through their neighborhood. But it's also, you know, elected officials. I mean, we have got counties in the Atlanta metro area that will not entitle any land for an industrial use. So it's just across the board we don't want any more industrial. And it's getting to, we want to have higher paying jobs. We don't want warehouse sort of paying jobs, and so it's just shutting down. And so I think that's a major threat going forward.
Spencer Levy
Well, thanks to both of you for joining The Weekly Take. First, our new guest, David Welch, CEO of Robinson Weeks. Thanks so much for coming out, and thanks for taking me to the Braves game in about an hour.
David Welch
You're very welcome, Spencer.
Spencer Levy
And then our old friend Chris Riley, Vice Chair of CBRE, soon to be Chairman of Robinson Weeks. Chris, congratulations and thanks for coming back.
Chris Riley
Thank you, Spencer.
Spencer Levy
With thanks to our guests and well wishes to Chris Riley on his career move, we hope you enjoyed their important industrial insights. Additional content can be found on our website, CBRE.com/TheWeeklyTake. As always, we hope you'll subscribe, rate, and review us wherever you listen. And send us your feedback, as well. We're happy to hear your thoughts regarding what you're interested to hear about on the show. We'll be back next week to keep delivering timely insights and analysis, and we look forward to seeing you then. Thanks for making The Weekly Take a part of your week. I'm Spencer Levy. Be smart. Be safe. Be well.
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