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Spencer Levy
The topic of this show may be one real estate sector in a single region of one U.S. state, but at that it's actually a conversation about one of the largest economies in the world. On this episode, we head to the West Coast to explore industrial real estate in Southern California, ways the sector is booming in this unique market and where there might be potholes down the road.
Barbara Perrier
Pretty much every major corporation in the United States wants to have a presence in the Southern California market. Mostly out in the Inland Empire, but it is the who's who of Fortune 500 list.
Spencer Levy
That's CBRE Vice Chair Barbara Perrier, a 33-year veteran of the company and one of its top brokers. Barbara is based in Southern California, where she specializes in industrial and land sales, and has spent the majority of her distinguished career.
Laura Clark
We understand what the market's missing. We understand what tenants are demanding. And we're able to deliver into that through our repositioning and redevelopment of existing buildings.
Spencer Levy
And that's Laura Clark, CFO of Rexford Industrial. Rexford is the second largest industrial REIT in the nation with a focus on development in Southern California infill markets. Its portfolio is valued at over $12 billion, including acquisitions of over $2.1 billion this year to date. I met our guests at the site of an event called The Power of WE, Women Excelling, that is. It was organized by the CBRE Women's Network and held in Scottsdale, Arizona – although our conversation is 100% SoCal Industrial. Coming up, industrial real estate in Southern California, opportunities in a vast and complex economic landscape. I'm Spencer Levy, and that's right now on The Weekly Take.
Spencer Levy
Welcome to The Weekly Take and welcome from beautiful Scottsdale, Arizona. We are here at The Power of WE event. 150 of CBRE’s top female professionals and their clients. And we have two of them sitting with us today. One is our great friend and repeat guest, Barbara Perrier, Vice Chairman, CBRE Industrial. Barbara, I've known you for so long. It's always great to see you.
Barbara Perrier
Great to see you as well. And great to be here in this beautiful place and beautiful weather.
Spencer Levy
Well, it is certainly beautiful and matter of fact, Laura Clark, our other guest, CFO, Rexford Industrial. First of all, Laura, thanks for coming.
Laura Clark
Thanks so much for having me.
Spencer Levy
But I think Laura actually had the better suggestion we should have done this by the pool.
Laura Clark
Absolutely. Yes.
Barbara Perrier
We agree.
Spencer Levy
It's pretty nice out there. It's pretty nice out there. So for the benefit of our listeners, how big is Southern California Industrial, Laura?
Laura Clark
So Southern California Industrial is the fourth largest industrial market in the world and that's behind the U.S., China and Japan. It's the highest value and highest demand market in the nation. So when you think about that from a vacancy perspective today, vacancy in Southern California is 1%; Historically low vacancy rates. In terms of demand, we have really experienced significant market rent growth within infill Southern California. And last year, market rent growth was over 65% in Rexford’s portfolio, and year to date is over 25%. So we continue to see very strong fundamentals from the industrial real estate side and infill Southern California.
Spencer Levy
Well, that's pretty incredible. 65 plus 25. Now that's cumulative.
Laura Clark
That’s correct.
Spencer Levy
So that, by my basic math, means that rents have doubled in the last two years. Is that about right?
Laura Clark
That's about right. Yes.
Spencer Levy
So speaking about that, Barbara, we have, I guess, the Tale of Two Cities here. We have the fundamentals, which are exactly as Laura just described, in which it couldn't be much better, 1% vacancy, 65 or 100% rent growth in the last year and a half. But the capital markets are tough at the moment. How would you describe that?
Barbara Perrier
I'd use the word choppy, very choppy. We've had a tough time lately. Obviously, people listening here are aware of what's happened to interest rates and they've gone up very quickly. I don't even think we've had a chance to absorb how quickly things have changed. One of the things we're seeing is, that has to have an effect on cap rates. So Southern California had the lowest cap rates in the nation earlier this year, last year. We've had some banner years where we were in the 3%, so we had probably the farthest to move because we were so low to begin with. And I would say right now, and it depends, all deals are not created equal. So you really need to look at the WALT, weighted average lease term, because that is a huge indicator of what cap rates you're going to get, which has come into play because that rent growth that Laura is talking about. Because there's so much potential in a Y growth that you can still get low cap rates for short term leases. But it's counterintuitive, long term leases, higher cap rates. So if you have a credit tenant on a 15 year lease, you're going to be in the fives. In January you would have been in the threes. That's a 200 basis point spread. And California is pricing like the rest of the country, which does not make sense. Their pricing it to debt. And I think Southern California's on sale right now. I really feel like that because it is pricing the same as, you know, Atlanta, Cincinnati, Columbus, all these other inland, infill, southern California. So it shouldn't be that way. But because of the interest rate movement, it is that way today.
Laura Clark
I think what Barbara said is really important to distinguish. It really depends on the lease term and if you're able to get to that mark to market opportunity because that lease hasn't rolled and you're able to get to that opportunity in the next, call it 1 to 3 years, you're still seeing some pretty low cap rates. And we haven't seen cap rates move that materially on those assets.
Barbara Perrier
Correct. It's a Tale of Two Cities in a lot of ways, right? Fundamentals, and then looking at each deal. And also, it's becoming more and more like looking at what you can replace the asset, what the cost basis is. And so a lot of times it's significantly below replacement cost and somebody who has a longer term hold will be happy to pay a low cap rate for that deal. But people will only accept negative leverage for so long.
Spencer Levy
Since I used the analogy of the Tale of Two Cities, I will quote the first line of the book.
Barbara Perrier
Okay, good.
Spencer Levy
It was the best of times. It was the worst of times. But I think that's overstating it from a capital markets perspective, because our house view is that, quote, worst of times, the spike in interest rates, is temporary. That it's going to last another year or so and then start to come down with cap rates. Do you take that into consideration? Let's start with you, Laura. When you're looking at the value of your own portfolio.
Laura Clark
Well, when we think about Rexford's opportunity in this market, we see a substantial amount of opportunity still in this market today. I think what's unique about Rexford is how, in which, we acquire. So we acquire the vast majority of our properties through off market and lightly marketed transactions. So what does that mean? Of the 2.1 billion that we've acquired year to date, about 90% of those have been acquired through off market or lightly market transactions, actually, since IPO in 2013. Over 85% of our transactions have been off market and lightly marketed. So how do we do that? We do that through a proprietary research, data driven approach, and we pair that with a broker marketing incentive program like no other, which Barbara is very familiar with. Through that research driven approach, we identify opportunities that would lead an owner to want or need to sell a property. So we identify these catalysts, and it's an extremely fragmented ownership market in Southern California. And so through that, we're able to pair that with a broker incentive program. There's over 3,000 industrial brokers in Southern California, and we look at those brokers as an extension of the Rexford team. And so by doing that, we're able to seek out and find opportunities where we can generate outsize yields. And in this market, we're able to do that. And we believe that through what we're going through today and this Tale of Two Cities world, as you referred to it, that we're able to find additional opportunities and at higher yields today.
Spencer Levy
So if you have a better book reference than The Tale of Two Cities, I'd love to hear it, by the way, in terms of how we would describe the market. But I think what I am hearing is that there's opportunity in the face of challenge. Is that a good way to put it?
Barbara Perrier
Absolutely. I think right now people are able to get much higher yields than they've had in the past. I think they're able to take advantage of the great fundamentals. And there's things that are coming on the market now that haven't traded for a while. And the reason is is that some of the pension funds and groups out there are getting redemption queues. And so that's causing them to look at their portfolio and see what they can sell. And in examples that we're seeing when they look at their portfolio, what's the most liquid? What can they sell the quickest? And that's industrial. They're not going to sell their office very quick. Retail's tough to sell. So they're looking at this class-A industrial that's coming on the market and you can buy it probably anywhere from 75 basis points to 200 basis points over what you could buy it just earlier this year. So there's the opportunity. Great real estate, good cap rates.
Spencer Levy
What about building it? Do you ever look at development or is it mostly acquisition?
Laura Clark
So at Rexford we reposition and redevelop our assets and we look for those opportunities within the acquisitions that we acquire and within our own portfolio. You know, when you look at the infill Southern California market, where we focus, there's really no land available to develop. And so we find those opportunities in which to be able to reposition and redevelop existing buildings. And what really gives us a unique advantage is our informational advantage. We've got a team, a significant team, on the ground. We have a significant informational advantage in Southern California. And so what that allows us to do is to be able to deliver product into the market that really meets the demands, literally on a block by block basis. We understand what the market's missing. We understand what tenants are demanding. And we're able to deliver into that through our repositioning and redevelopment of existing buildings.
Spencer Levy
I find that really fascinating because I used to say that the most micro of asset types, meaning the most local, local, was self-storage, because it had to do with the rooftops in the immediate environments. What you're saying, Laura, is that traditional industrial may be just as local, if not more so. Is that what you're saying?
Laura Clark
100%, when you're located in infill Southern California. So our tenants serve the regional consumption base of infill Southern California. And what that means is, in infill Southern California. You have over 23 million people, you have over 550,000 businesses. And so they need to be as close as they can be to the first mile, the port and the last mile, that zone of consumption. And so our tenants aren't necessarily looking for that 32 foot building, right. Clear height building. Our tenants are looking for that building that gives them the access to that first and last mile. And that's critical, really mission critical, for them to be able to operate their businesses.
Spencer Levy
Now, Barbara, you're part of a national team. So while you spend much of your time in Southern California, you see the other big trends. What do you think, in your opinion, from an industrial standpoint, distinguishes Southern California from, say, other good industrial markets? Chicago's a great industrial market, you have great port markets in the east. What are some of the distinguishing characteristics if you’re looking at it big picture?
Barbara Perrier
Number one is we have the ports of L.A. and Long Beach, the two largest ports in the United States, located in our backyard. And so those are really big drivers of the industrial base. We've got an excellent freeway system. We've got six airports in the area that service the area. And we've got a huge population, so population really drives needs for industrial. And Southern California is one of the most populated areas in the world. So all those things drive the industrial base as well as the fact that pretty much every major corporation in the United States wants to have a presence in the Southern California market, mostly out in the Inland Empire. But it is the who's who of Fortune 500 list.
Spencer Levy
So you mentioned before about your portfolio and that you have, I don't want to mischaracterize it. If it's public information, what is the WALT in your portfolio right now?
Laura Clark
The eighted average lease term of the leases we sign is about four years, and the mark to market within our portfolio today is 62% on a cash basis. So significant embedded growth within our portfolio. When we look at actually what that embedded growth implies. So if you look at our repositioning redevelopment, that mark to market, if you look over the next 24 months, that implies $170 million of embedded NOI growth just within our portfolio. If we stopped acquiring today and if market rents stopped growing and we haven't seen market rents stop growing.
Spencer Levy
Some of our clients are suggesting that given that we are in this hyper inflationary environment at the moment, that they're increasing the bumps in their leases from what might have been 2 or 3 to 4 or 5. Barbara, what are you seeing? And Laura, I’d like your response.
Barbara Perrier
We're for sure seeing the annual rent growth go to four as a standard, five if you can get it for the smaller tenant, sometimes that's easier than the bigger tenants, I'll push back. And it makes a huge difference. So if you have a lease, you might be okay taking some negative leverage on the acquisition if it has big rent bumps in it because you know, in a year or two you're going to quickly get over the cap rate, which would be accretive. And I think that's here to stay. I don't think we're changing. I mean, CPI is certainly outpacing that. One of the questions we get asked is, are we going to go back to rent growth tied to CPI? And we got away from that because CPI was so low and people didn't want that. Whether we get back to that yet or not, I don't know. But I do feel like this higher rent growth annually is going to stay.
Laura Clark
Yeah, I mean, we've had tremendous success pushing in our better rent steps. If you look at pre-COVID and our better rent steps and industrial leases in Southern California has been 3% or lower I think since the beginning of time. But for the last seven quarters, consecutively, we've actually seen our annual better rent steps move higher. And this past quarter of the leases we signed, they had an on average 4.4% annual and better rent steps, and that number has grown every single quarter, the last seven quarters. So we've continued to be able to push those. We're at this point pushing closer to 5% than four.
Spencer Levy
So ultimately what we're seeing here is a great market with capital markets distressed that's impacting everyone. In terms of the thesis for Rexford, just sticking with SoCal. I'm sure you get asked all the time, why don't you go outside of SoCal? What do you say?
Laura Clark
The really short answer is no, we're not leaving So-Cal. But the little bit longer answer and some color around that is because, first of all, the strength of the market. If you look at Southern California versus any other U.S. major market, it has the lowest vacancy rate. Historically, I can look back over 20 years, lowest vacancy, lowest volatility, lowest risk market. So if we were to diversify outside of Southern California, we'd essentially be bringing in more risk into our portfolio. The second piece of that is, I mean, we see tremendous opportunity to continue to grow in Southern California. We only own 2% of the market. Just two. And when you think about our proprietary acquisition approach that I mentioned, that really data driven research approach, it's those relationships that we're building within the market. It's those relationships we're building with brokers within the ownership model that really the compounding effect of our model is why you're seeing our ability to continue to really excel and really push our acquisitions. And so the other piece of it, I think, is the dynamics of the market. And it's really important to talk about what's really dynamic and the demand and supply imbalance in the market today. I'm sure that Barbara can speak to it as well, but we are truly seeing an ongoing demand supply imbalance and infill Southern California. And I can talk a little bit about both sides of that. But when it comes to the supply side, I mean, when you think about such a dense market, there's nowhere to develop, essentially no developable land, and then you've got geographical barriers. But I think what's truly unique about our market is the diminishing supply. We've actually seen supply of industrial go down in Southern California over the last ten years. Are there any other markets in the country where you actually see supply going down?
Barbara Perrier
Yeah, I would say the interesting thing about the comment you made on supply is that with the period of time we're in right now, a lot of the projects are getting put on hold or they're not trading or it's not happening. And so it's going to put further constraints on supply, right? So now we're coming into it like a compounding effect where we've got super strong fundamentals and we're going to have a further compounding of lack of supply, especially in class-A, because these deals are not happening. And then on top of that, California has a lot of, kind of, anti-development. There's a lot of headwinds right now that is kind of forcing development to not happen. I mean, we have an example in the Inland Empire where a city just basically down zoned, took the industrial zoning away. And so that was going to be a big project and now it's going to be a residential project. So I think you're right. We have a market that's very unusual because we have a diminishing base, as well as some of these headwinds that we're in right now in the capital markets is going to compound it further.
Laura Clark
Yeah, and one more thing I'll add in terms of the diminishing supply is we believe it's going to persist and what's really going to drive that is the housing mandates. So in California, we're woefully under housed. And in Southern California alone, we need to add 20% to our housing stock. So just to put some numbers around that, that's 1.5 million homes that are mandated to be added to Southern California. And this is the urban areas, by the way, by 2029. 2029 is going to be here before we know it. And so what happens if those cities don't develop those housing units is they lose out on state funding and they also could get penalties. So you've got funding and penalties at risk for these cities. So what's going to happen is you're going to have to convert industrial uses into multifamily and other housing type uses, right? And that's also going to drive demand from the construction and building trades for tenants within our warehouses. And then lastly, it brings in consumption, which is great at the end of the day when you bring in the houses. So I think that dynamic is just going to make this supply picture just continue to get much more challenging, as Barbara mentioned.
Spencer Levy
One of the areas of supply that I think is fair to say is perhaps most challenging at the moment, is in the office sector. And I've seen in markets like Brooklyn, Seattle, even Wilmington, Delaware, where people have taken old office locations and converted them into multi-story industrial as a means of creating that new supply. And by the way, they're getting rents there that are approaching office rents. Are we going to see that in Southern California, some of these office projects converted?
Barbara Perrier
So I don't see the office projects being converted. We're at the point now where multi story industrial does make sense because we have rents that finally make that pencil. But I think more likely as we see the office market struggling, that that's going to be the answer to some of the housing situation that you've talked about, Laura, because my sense is that there's architects out there right now studying floor plates. How can you become more efficient and if the price is right? For those office buildings, then you can afford to change it into multi. I don't see going industrial.
Laura Clark
Yeah, I would agree. And I also think the moratoriums around development and industrial that many of the cities are facing today will make it more challenging to convert those buildings from office to industrial.
Barbara Perrier
We are seeing a big trend right now in the industrial world, in southern California, which is covered land plays and there's office buildings that are maybe more suburban office buildings, maybe one story, two story, that have some in place rents, but their underlying zoning is industrial. And so those are opportunities where we see a lot of interest right now because you can get a pretty high yield to carry till you get your entitlements, you have time to get your entitlements and then you scrape the office building. And that's going to have a good effect to the office market too, because what's going to happen is those office tenants will be coming into the cities and taking more traditional office space. And then the industrial, new development, because of the demand, will lease up at pretty high rates.
Spencer Levy
In terms of the price being right, what is the right price to redevelop? The real question I'm getting at, have land prices dropped?
Barbara Perrier
Yes. So we have definitely seen land prices drop. And I think it's a great buying opportunity. I think everybody's a little frozen right now and they're not, you know, sometimes when you're in the midst of something that's changed so quickly, it's easier to not make a decision than to make a decision. And there's some really good values that are coming because land has come down. Two reasons: exit cap rates, people don't know where to predict those. Now, I'm of the mindset that the exit cap rates should be coming down by the time you're exiting and you should be using a lower exit cap rate than going in. That's counterintuitive to what most investment committees want to hear, but that's affecting it. Construction costs, obviously, are still high, and even though you can really predict your rental stream, the cost of debt, everything is factoring in. So land is probably down anywhere between 10 to 30%, depending on which submarket the property's in. And it's more important to get entitlements. So if you have unentitled land, it's just tougher and tougher.
Spencer Levy
Now, these entitlements are not just for how much you can build, but it's also access to water, electric, other things like that as well. And I think that brings up the stress question. And so, look, I want to build more multifamily, I want to build more industrial, but we are now looking at markets that have water challenges. We happen to be here in Phoenix. I love Phenix, but based upon a study I saw, Phenix came out as one of the most water stressed markets in the U.S.. And so how do you handle that from an underwriting perspective? Are you now underwriting that in California Laura?
Laura Clark
In terms of our underwriting, I think what we're, because we reposition and redevelop, essentially, we recycle old buildings. And so really, and it goes back to our underlying strategy around ESG, right? We want to be able to make the least amount of impact from an environmental perspective, and our strategy allows us to do just that. And so when you think about not building ground up versus a model where you actually reuse what's existing and what's there, it has a dramatic positive impact to the environment overall, right? We're reducing emissions. We're reducing what goes into the landfill. We reduce what has to be manufactured, and we reduce in carbon. So we are very focused on how we're reducing our environmental impact and making a difference. In terms of thinking about climate change risk, last year we did a very robust climate change risk analysis and published our TCFD report, our Task Force for Climate Related Disclosure Report. And within that we identified our key climate change risk and then what we need to do in which to mitigate those risks or take advantage of opportunities. And so that's an area of focus for Rexford, not just for how we invest, but also for our existing portfolio.
Spencer Levy
And for your existing portfolio. I agree with you, by the way, that there's nothing greener than reusing the existing project that's sitting there. But there are other things you can do. There are solar panels, there's EV charging stations, there's other ways to mitigate water and electrical use. Tell us about some of those things.
Laura Clark
We're doing all of those things. We've got an incredible amount of initiatives from an ESG perspective, not just on the environmental, but on the community side, which I can talk about. But on the environmental side, I mean, we're looking to set science based targets within the next 12 months. We have a solar program that we are expanding significantly. We just have a significant solar opportunity. We have over 500 buildings in sunny, infill Southern California. And so we've actually made a commitment to reposition and redevelop all of our buildings to LEED silver or better. Our prototype has actually just been approved for the LEED volume program, and we'll be building to LEED gold and even LEED platinum within industrial. And that's actually very few LEED platinum properties. So, yes, we're spending a lot of time thinking about how we're going to build most efficiently.
Spencer Levy
So Laura, we went into great detail about supply, but we really didn't touch on the demand side of the equation and how that's been shifting within Southern California. Why don't you tell us more about that?
Laura Clark
We're seeing a diversity in demand and in infill Southern California like we've never experienced. And it's truly dynamic from a demand perspective. And so what we're seeing is we're seeing demand from industries that literally didn't exist five and ten years ago. So think about e-commerce. We all know e-commerce has been a significant driver of demand. But when you look at e-commerce, these aren't just warehousers. These e-commerce providers are literally changing the game from a supply chain perspective. They're bringing in innovative technology that's literally changing what the supply chain picture is going to look like going forward. And then you pair that with industries that weren't here five years ago, electric vehicles, satellites, space exploration. You look at the construction trades, we talked about what's diminishing supply in terms of the housing mandate. So we're seeing a significant amount of demand that we expect to continue from housing trades, the building trades. We're seeing demand from food distribution. We're seeing demand from food delivery. We're seeing it from medical and medical device. And I could go on and on. But I think the diversity of demand is more expansive than we've ever seen it before here in infill Southern California.
Spencer Levy
Forgive me for getting a little wonky here, but I'm fascinated by your underwriting. I'm fascinated by your proprietary ability to underwrite on such a micro-level without giving away the store. If you can just give us a few more of the elements that you try to use to underwrite. What are some of the most important things that our listeners should be thinking about when they're trying to underwrite industrial?
Laura Clark
Yeah, absolutely. So when we're really looking for those catalysts that would lead the owner to want or need to sell the property, those catalysts can be anything from a debt maturity. It could be lease expirations, it could be capital needs. But the single greatest catalyst in Southern California that leads an owner to want or need to sell a property is the generational shift that's occurring in Southern California. So when you think about where we're at in terms of most of this, real estate was owned and developed kind of post World War II. We're now into generation two and generation three of ownership where those owners, it's become a much more fragmented ownership pool and they just have different things that they'd like to invest in and they've got different priorities. And so what happens is as we identify those opportunities and by sending out this year alone, we've sent out over 700 LOI’s on over $30 billion worth of real estate in Southern California. And by identifying those opportunities and when we identify those opportunities, we're touching some of those opportunities on a weekly basis. And why do we touch them on a weekly basis? It's because those are very, very near-term catalysts. Sometimes we're touching those on a monthly. We'll touch them quarterly, annually. And these are opportunities that we're curating over the years. It's taken us 20 plus years to develop this database of information. And so today we're tracking over 2,000 opportunities. And those are real time opportunities that we're tracking and we're touching, at least on an annual basis, most of those much more frequently.
Barbara Perrier
It's interesting you say generational shift. I think what's happening is that the values have gone up so quickly in the industrial market, post-COVID coming into a market with huge rent growth, that somebody might have had a warehouse that was worth $5 million when they bought it, and today it's worth $50 million. And that $50 million is a game changer, like it's a game changer for that family. And so all of a sudden, people are thinking of their real estate a little differently. And that's a catalyst to sell, right? Take that money, reinvest it, and set yourself up. So we're seeing a lot of those types of things happen because values have gone up so much. Now we're coming into this, what we call the choppy capital markets, right? And so some people are panicking because they felt like they were waiting till we hit the peak and now we've kind of hit the peak and were adjusting. And so a lot of folks are calling, going, how quick can we get our property sold because they're worried that it's headed the wrong way.
Laura Clark
Yeah, and there's still a lot of sellers out there because of just that. Maybe values have come off a bit from where they were at peak levels. But when you look at that delta, between the 5 million that Barbara talked about and maybe now it's 45 million, right? Still significant value creation there. And so at Rexford, our ability to source and acquire these opportunities allows us to drive outsized returns and cash flow for our investors. And just to put some numbers around that, because, Spencer, I really like numbers, but just to put some numbers around that, for the last five years, on average, Rexford has generated 15% average annual earnings growth. If you compare that to our peers, our industrial REIT peers, their average annual growth has been 9%. That difference between the 15 and the 9, I like to call the Rexford Alpha, and that's really our ability to be able to acquire those opportunities in off market, lightly marketed transactions. And that's our reposition and redevelopment. And so that's how we were able to generate that outsized cash flow growth.
Spencer Levy
The opportunity today isn't just a by-product. The opportunity we see today across all asset types is this situation that is somewhat unique of negative leverage just about everywhere. And are we seeing more seller financing? Are we seeing more opportunity to put in pref or mezz? And how are you seeing it, Barbara? And is this something, Laura, that Rexford might consider?
Barbara Perrier
So we have seen, I haven't seen seller financing for a while because debt was so inexpensive and nobody really wanted to finance at those levels, but right now it's coming into play. Also assuming existing financing is happening because if you have an accretive debt in place, now it makes sense to assume that. People have to get a little more creative in today's environment. So I absolutely see that continuing and I know you guys don't put a lot of property level debt, but curious to see if you're seeing that.
Laura Clark
Yeah, I mean, we don't use a lot of debt and I can talk about how we fund acquisitions in our capital structure, but we are seeing the opportunity to potentially put some mortgage loans on properties, potentially, some seller financing. But for us, we'll be very selective in that area. And at the end of the day, it's got to be an asset that we want to own, right, in a market that we want to own. So, again, very selective for us, but we're seeing some, I'd say, more creative type opportunities, as Barbara mentioned. But for us in terms of the capital markets and funding opportunities, we focus on maintaining a very low leverage investment grade balance sheet. And if you look at Rexford’s leverage, we have the lowest leverage within the industrial REIT sector. We actually have one of the lowest level balance sheets in all of the REIT space. And we've always focused on having a low leverage balance sheet because it positions us to be opportunistic through all phases of the capital cycle, even through this new phase that we're in today. So we have access to debt capital, equity capital that today is still very accretive for us to buy opportunities and truly grow cash flow on an accretive basis and add to long term NAV growth.
Spencer Levy
And what I was really suggesting is not just for the assets that you own in your portfolio. I was saying maybe you have one of these intergenerational owners that wants to sell but isn't quite sure because the market's gotten, I think, choppy is the word we're using today, Barbara. It has gotten choppy. You could give them a piece of preferred or a piece of mezz or some other piece of debt financing that would let them bridge between now and two years from now when things are better.
Laura Clark
One of the things that's really unique and differentiates Rexford is our ability to offer UPREIT units. So essentially UPREIT units or OP units. Those are essentially convertible into Rexford stock and those are convertible into Rexford stock at the time of that seller's choosing. And what's really great about that is it provides tax protection. So you're not paying the taxes on the sale of your property until you actually convert those units into common shares, which are liquid, because we're trading on a daily basis. And so what's also unique about that and is a big differentiator for us is when you have multiple partners, multiple family members use generational assets, it gives people the choice. So someone can say, I still want to be an investor in Southern California industrial real estate. You're an investor in Rexford, right? And somebody else may want to cash out half of their investment and buy a new house and keep half of their investment in Southern California industrial real estate. So that ability for us to execute on UPREITs is a significant differentiator for Rexford in the market.
Spencer Levy
But I do want to just mention again the event that we're out here today and how important it is. We're at the event called The Power of WE, which has the “WE” for Women Excelling. And we have many of our top women professionals here from CBRE and many of our top women clients here from great companies like Rexford. The business has changed, but let's face it, Industrial has not always had a lot of women in the industry. How would you say where we are today and where we're going, Barbara?
Barbara Perrier
We have come a long way. Like I mentioned, I had been with CB for 33 years and when I started, I could name on one hand the women in industrial, right? It was very, very light. And now there's a substantial amount of women that have focuses around industrial, which is great. And I think that the shift is changing. A good example is last night I was at a dinner with a group from our sister company, CBRE Investment Management. And 90% of the portfolio managers for CBREIM are women. So the world is changing and I'm really pleased about it.
Spencer Levy
How would you look at the same issue Laura?
Laura Clark
I've been in commercial real estate, actually the REIT world for nearly my entire career, and I think it's changed dramatically. And I couldn't be more proud at Rexford that 55% of our team members at Rexford are women. But that doesn't mean that we're done. We still have a long ways to go in terms of getting women into more senior level positions. I think that this is such a great opportunity and conference that CBRE is putting on is really focusing on how do we do that, right? How do we continue to empower women? How do we continue to help them grow and develop? And I'm so proud to be at Rexford and our focus in terms of diversity. For me, it's quite a passion, not just at Rexford, just across the industry, to be able to continue to push women forward.
Spencer Levy
Well, that's great and everything helps and we still have a long way to go, but we're moving in the right direction. And events like WE, which stands for Women Excelling, is a terrific step in the right direction. So on behalf of The Weekly Take, I want to thank both of our guests here today, starting with Laura Clark, CFO, Rexford Industrial. Laura, terrific job. Thank you for coming.
Laura Clark
Thank you so much for having me.
Spencer Levy
And my old friend Barbara Perrier. Second time on the show. Certainly not your last. Great job. Thank you for coming today, Barbara.
Barbara Perrier
It's been a pleasure. Always great to see you.
Spencer Levy
Thanks again to our guests and to our hosts from the CBRE Women's Network at The Power of WE event. You could learn more on our website at CBRE.com/TheWeeklyTake. Of course, thanks to you for joining us as well. We'll be back next week in the homestretch for our 2022 programming season. We'll bring you more stories and more insights. We'll take a look back on an eventful year and also start to look ahead at what's to come in 2023. In short, stay tuned. Meanwhile, don't forget to share the show and also subscribe, rate and review us wherever you listen. I'm Spencer Levy. Be smart. Be safe. Be well.
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