DOWNLOAD TRANSCRIPT
Spencer Levy
I'm Spencer Levy and this is The Weekly Take. We've covered a wide variety of angles on this unprecedented period in history, deep dives into how the pandemic has affected the economy, how we live and how we work. But if there's anything that remains a developing story, especially for commercial real estate, it's the movement of people and businesses around the country.
On this episode, we take a regional approach, a trip to the Southeastern US with a panel of guests who bring decades of expertise and experience this part of the country.
Ted Klinck
Companies and jobs follow the talent, and there are literally thousands of highly educated college graduates each year who want to stay in the Southeast after graduation.
Spencer Levy
That's Ted Klinck, CEO of Highwoods Properties, based in Raleigh, North Carolina. Highwoods focus on what they like to call BBDs best business districts with investments across the region.
Geordy Johnson
The South has a great cost of living, a really nice climate, both weather and the business climate is quite friendly.
Spencer Levy
And that's Geordy Johnson, the CEO of Johnson Development Associates, a family business headquartered in their hometown of Spartanburg, South Carolina. The company has interests in multiple states and sectors. We're also joined by a pair of seasoned CBRE brokers with a wealth of perspective on trends that are playing out in the Southeast.
Frank Fallon
We still have a great population growth in Atlanta, but they're going to Nashville. They're going to Raleigh, they're going to Orlando. And we're seeing it from the Midwest. Just a mass migration.
Spencer Levy
That's Frank Fallon, a vice chairman with National Partners, part of CBRE’s Investment Properties Group in Atlanta and a specialist in the industrial sector.
Will Yowell
We are starting to see a lot of institutional capital move into markets that traditionally haven't thought of as tertiary in some respects, like a Charleston, like a Greenville, South Carolina.
Spencer Levy
And that's Will Yowell. Will is also a vice chairman, CBRE’s Investment Properties Group, and he specializes in office. Coming up, real estate with a eastern exposure. That's right now on The Weekly Take.
Welcome to The Weekly Take and this week we are going to be talking about perhaps the hottest real estate area in the United States, the Southeastern United States, which is a large region encompassing Raleigh, Atlanta, if you go further south to Tampa, Orlando. But in any event, whenever people talk about where is the money going, where is the capital going? Where are the people going they’re going south to the Southeast. And to join us in today's conversation, we have four of the most senior real estate professionals in the Southeastern region, starting with Ted Klinck, the CEO of Highwoods. Ted, why is the Southeast so hot today, Ted?
Ted Klinck
Well, I think, you know, migration in the southeast has really been occurring for a really long time. You know, I think most of the major southeast markets are really growing at a rate well in excess of the national averages. And that's been occurring for a long time. And I think there's many reasons why the southeast is a destination of choice, is really low cost of living, high quality of life, affordable housing, low tax rates, business friendly environments, proximity to great universities and a highly educated workforce, not to mention the warm weather. I think these characteristics are driving population and corporate migration to the southeast. You know, and I'm a believer, Spencer, that companies and jobs follow the talent and there are literally thousands of highly educated college graduates each year that want to stay in the Southeast after graduation, which provides a large and diverse pool of talent to recruit from each year.
Spencer Levy
Well, I would agree with that. And a shameless plug, number one for CBRE’s both tech, talent and Tech 30 reports the southeastern United States continues to rise, in particular cities like Raleigh, Charlotte and Atlanta. So from your perspective and first of all, Geordy, I want to tell people exactly where you're sitting today in a smaller city, but why do you think the Southeast is doing so well?
Geordy Johnson
I'm sitting in Spartanburg, South Carolina, my hometown and our corporate headquarters, nestled in the foothills of the upstate on I-95. And I-26 were an hour from Charlotte, two and a half hours from Atlanta, an hour from Asheville and about three hours from Charleston. The Greenville Spartanburg metro area has about one point two million people, and it's the crossroads of the New South. I would echo a lot of what Ted just said. You know, the South has a great cost of living, a really nice climate, both weather and the business climate. This is quite friendly, a great workforce. We've got great higher ed, an education system, attractive tax rate, and people are moving here. And as Ted said, companies follow jobs. This is where the workforce is. This is where the colleges people want to have either regional headquarters or consider moving their corporate headquarters here. There's a lot to like and we're very bullish on the Southeast over the next 20 or 30 years. We think these trends are only going to accelerate.
Spencer Levy
Frank, let's turn to you now and one of the asset classes of choice, as I call it, the land of milk and honey, industrial as it hasn’t always been the case, Frank, because you've been in this business a long time. Tell us how the industrial segment has evolved. Where is it today in the Southeast and how is it gotten better over the last several years?
Frank Fallon
Well, my colleagues, Ted and Jody, mentioned the population growth. And what we've seen is the dynamic of that population growth. It used to be 20 years ago, Spencer, we would say, you know, graduates in the Southeast majority would head to Atlanta. Right. That was where the jobs were. That's not the case today. I mean, we still have great population growth in Atlanta, but they're going to Nashville. They're going to Raleigh, they're going to Orlando. And we're seeing it from the Midwest. Just a mass migration, the industrial business. We get kidded a lot about how simple it is. Well, here's what it is. It's population growth, which means consumers in your market, which means consumers are buying goods out of these warehouses. And that's what drives this primarily is the goods coming out of the warehouses. So we've seen, obviously, migration from the West Coast capital moving to the East Coast. They want to invest in the southeast. They're tired of the high regulations. They're tired of high taxes. We're a business friendly environment.
Spencer Levy
Well, Frank, at the risk of some of our industrial investors falling out of their chair, why don't you repeat to me some of the pricing that you're now seeing, what you think you can achieve for class A industrial in the southeast?
Frank Fallon
Sure. We are in the very low, let's say the class A, the best of the best, Spencer. So we're in the very low four cap rate range in Atlanta today. We placed a deal in Raleigh, which was not a new product, it’s twenty year old product at a four two cap rate on a five year lease. OK, so it's not just Atlanta, it's these other secondary markets. The secondary markets are becoming primary markets for what we do. And I think the next poor deal in Atlanta is going to break through a four I think will be in the upper 3s. We've seen it happen in Dallas on a couple of deals recently. It's just it's going to come to Atlanta next, we believe in that.
Spencer Levy
Pretty remarkable. I remember when we were trading assets in Atlanta, Charlotte, Raleigh, with a seven handle on it not that long ago. It's 400 basis points, folks. Quite, quite a good run. So. Will, let's talk now about office in the Southeast. And I don't want to be quite as positive. It's not the land of milk and honey as is industrial. But notwithstanding some of the challenges of COVID, I think it's fair to say that officers performed a lot better in the Southeast than it has elsewhere in the United States. Would you agree?
Will Yowell
Absolutely. Spencer, for all the reasons that Ted and Geordy and Frank talked about earlier, that there is a real draw to the Southeast by talent. And so companies are following that. And we've all been doing this for a while. I would tell you right now, I've not seen Atlanta experienced the kind of growth in headquarter relocations and or major regional office presence, as I've seen in the last six to nine months here during the middle of this pandemic. And I think that's just a testament to these companies really being focused about attracting that talent. And that's starting to play out very much in the interest that we're seeing the demand of capital and investors looking at assets in the Southeast, you know, definitely here in Atlanta. But certainly markets like Charlotte, Raleigh, Nashville, where Geordy and Ted are very active. They're experiencing some very, very good pricing on assets of all quality types.
Spencer Levy
Well, let's dig a little bit deeper into that for a moment. Will be a little bit more specific about what is the good pricing today, which is where it was maybe a few years ago. And then also, I want to follow up on international and other capital coming to the region. Can you comment on that as well?
Will Yowell
Yeah, sure. So maybe starting with the latter, the international capital has been off the charts, quite frankly. We've seen a tremendous amount of Asian capital. Southeast Asian capital has been focused in the southeast just recently. Not that it wasn't previously, but if there's a heightened awareness there, European, Middle Eastern, and it's not only just looking at the what I call primary markets of in Atlanta, but Charlotte, Raleigh, Nashville, you know, we've seen that capital be attracted to go into those markets because, again, that growth that's taking place there. And so, you know, from that perspective, I think from a pricing standpoint, Spencer, as you mentioned, you know, we're not seeing the kind of cap rates that Frank is seeing in the industrial space by any means. But we are seeing some of the lowest cap rates we've seen in office in my career anyways, you know, dipping well, well down into the very low 5s. And in some situations with the prime assets, we're seeing sub five cap rates into the, you know, upper and even mid fours for the select best assets with the top quality credit tenants.
Spencer Levy
That's still remarkable given where cap rates were few years ago. And to note that we are in a somewhat rising interest rate environment today and we're maintaining those cap rates. So, Ted I would like to get your perspective as one of the largest office owners in the United States. How's it going in terms of your physical occupancy, your legal occupancy, and what do you see as the future?
Ted Klinck
Sure. You know, physical occupancy today, you know, I think it's somewhere in that 25 to 30 percent range. And that's been pretty steady throughout COVID. I think the large customers have been largely been remaining at home and the smaller customers we've seen come into the office more like what's encouraging is it has ticked up a little bit in the last couple of weeks. And what's even more encouraging than that to me is the amount of calls our customer service center is fielding from customers that say we've now have a plan to come back and sort of handholding a lot of the customers working with them on their return to work plan. So I'm encouraged, I think in the next, you know, 30 to 90 days we're going to see a slow, gradual pickup. And then sometime between Fourth of July and Labor Day, I think we're going to see a lot more returning to the office. So I'm encouraged, obviously depends on continued success of rolling out the vaccine and how that goes. But in terms of just the future of office, I keep reading about this hybrid working model, how employees have increased you know, they want increased flexibility and the ability to work from home for one or two days a week. And I do think that's going to happen with a lot of companies. But it's too early to know what a hybrid model is going to be. I recently saw a survey just last week or so that said employees want their cake and the ability to eat it, too. They want to work from home a couple of days, but they want to keep their dedicated desk. So I think it's going to evolve. I think it's going to be different for different companies, different industries, maybe even different departments within companies. But it's going to take a while to figure out and then a while to play out as well.
Spencer Levy
Well, speaking of cake and eating it, too, when I got to CBRE 14 years ago, I had three physical offices with my name on the door, one in New York, one in Washington, D.C., one in Baltimore. Now I have none except I guess on my mailbox at my house, but I can't wait to get back into the office, even if it's not a dedicated office just to be with my colleagues. And I'm sure I speak for everybody else on this call. But let me ask you one more question, Ted. I think it's fair to say that not only are conditions a little bit better in the Southeast, but the freedom of movement is a little bit better in the southeast than we're seeing elsewhere in the country. So you own an asset in Pittsburgh. Is there any way you could compare and contrast how that not just the specific asset, but the market is doing versus, say, your assets that are in Atlanta or Charlotte or Nashville?
Ted Klinck
That's a great question, Spencer. I'd tell you, Pittsburgh is more shut down today than any of our other markets. It's obviously the furthest north is not in the southeast, but all of our assets are concentrated downtown Pittsburgh. And right now in our physical occupancy in Pittsburgh, the lowest of our portfolio, the CBD has just been impacted by some of the civil unrest last summer. And most companies are choosing to stay at home until that state and the city opened back up again. So it has been slower from an occupancy physical utilization standpoint today.
Spencer Levy
Geordy, let me turn to you now. I know where we have two of our great experts on industrial and all of us on this call. But one of the great things about your company, Johnson Development, is that you could do a lot of different asset classes, just generally speaking, for a moment, but also because of the pandemic. Do any of these asset classes look more or less attractive coming out of this?
Geordy Johnson
Spencer, you know, we were obviously in four main real estate lines, which you mentioned, lodging, self-storage, industrial, multifamily. They've each been impacted in different ways. Lodging has obviously been the most adversely impacted. Industrial on the other hand, with that, just the increase in all the tailwinds that were already pushing e commerce has been a tremendous winner. I think going forward, we remain very bullish on industrial. We love the self-storage space. Multifamily we're big believers in housing and that's an asset class that we're going to lean into over the next several years and increase our presence both on the human capital side and the physical side of the business. We believe in long term, it's an institutional asset class. There's a lot of runway and we think rental housing in the south is going to be very attractive. We're playing a little bit in the single family sector, mainly around land, selling to homebuilders, lodging. It's the business we've been in the longest 25 years. We love it. It's different. It's an operating business. It's a spec building every night, a 24 hour lease. We finished the year at sort of 65 percent occupancy and our rate was down. But we're big believers in lodging. We bought it. We bought a new asset in August and we just went on our contract last week on an acquisition in the Southeast. And so we continue to look for opportunities there and we're definitely shifting. Historically, we've been very focused. Manhattan, DC, Boston, really heavy presence in Silicon Valley and the L.A. Basin. We've pivoted over the last two to three years to Florida, which has really benefited us recently. And we see we're spending a lot more time in markets I would have traditionally smallest in the southeast, Wilmington, Myrtle Beach, other places, and we think dropped to leisure is going to come back roaring this summer. We're already seeing it. We're sold out every night in March in Florida for spring break.
Spencer Levy
Well, that's pretty remarkable about Florida now. So this may be a simplistic question, but I'd like to just get your point of view. Are you more or less optimistic about hospitality going forward, given its challenges during COVID?
Geordy Johnson
I'm definitely more optimistic than I was 12 months ago. You know, February 2020 was the best year in the sector's history. It's going to take you know, I don't know if business travel ever comes back to that, but I think, as I said earlier, there's tremendous pent up leisure demand. We're going to see that materialize this summer. I think we are equally bullish on the hospitality that we were before the pandemic. But our strategy is going to be different and it's going to be more focused in the southeast and in leisure markets. I would also say just at the asset level, stress has been mitigated a lot by PPP and bank forbearance. So we are generally not seeing a lot of the distressed opportunities we'd expect. We would have put more capital out if we found the opportunities. But, you know, the asset level balance sheets have held up better than some might have thought.
Frank Fallon
Spencer, that's a great, great point that Geordy just made about distress in the market. You know, a year ago, March, April, we were getting calls constantly about where's the distress, where is it? We're in fortunately in the industrial sector, it never materialized. But I think that's the difference versus the great financial crisis, right? There was distress that we just we didn't have at this time.
Ted Klinck
Geordy, is it do you think the distress is just it's going to come you just have to be patient, or do you think it's going to work through itself?
Geordy Johnson
You know, we hope those opportunities come. I think last year there was a big big ask spread between sellers anchoring to their 2019 numbers or February 2020. And, you know, the distressed buyers that were calling for wanting a 40, 50 percent discount and banks learned the lesson from 08, 09 10 that they worked with their borrowers and, you know, travel recovered. PPP helped a lot of hotel operators. We still hope to see some of those opportunities. The deal we bought North Carolina came back to us when someone else fell out of contract. You know, we bought at a much lower price than we bid pre pandemic. We are seeing opportunities, but I don't think it's going to be the fire sale that we that, you know, many people hope for. I will tell you the other good thing about hospitality is lending for new construction is practically nonexistent. There's some interest in these acquisition opportunities that invoice cash flows. But even that is challenging.
Spencer Levy
One of the words that I've been using recently, a lot of people talked about acceleration of trend and that acceleration of trend clearly benefits the Southeast from a demographic perspective. But the other word that I use is distortion. And the distortion is that there's so much capital out there that's chasing a relatively small segment of the space and that includes industrial. It includes cold storage, self-storage, life sciences, data centers. You guys know all the hot areas that it is causing these cap rates to fall to record levels. But to Geordy’s point, it's also causing distress deals not to be priced at the stress levels. We've sold many loan pools above 90 cents on the dollar. That includes a lot of hotels. And that that is the distortion that we're seeing. But I do believe it's going to lead to the capital having to come back to multitenant in office. So, Will, let me turn squarely to you on that question. Is the capital returning to multitenant office not just single tenant, it offers multitenant office and also the situation in the debt capital markets there.
Will Yowell
Yeah, Spencer, that's a good question, because so much of 2020 and even as we began 2021, the capital that was most aggressive anyways was very focused on having term and credit. So the single tenant or a few tenant at least buildings where we saw a lot of the activity, you know, last year in the heat of the of the pandemic, we have definitely seen a turn over the last three months, basically here first quarter of 2021, where capital is understanding that, you know, to Ted's point earlier that the office is not going away and people want to be back in the office. That, in turn, has prompted capital to start to look at that. And I think, you know, we talked about distress, and Ted knows these numbers better than I do, but the collection rates these owners have received over the last year in office have been remarkable, quite frankly, given the fact that, you know, as Ted noted earlier, physical occupancy is in the 25 to 30, 35 percent range, yet collections have been well over 90, 95, in some cases even higher. So back to your question. The multitenant office investments, we've seen an uptick. I think that's a trend that we're going to see, you know, going forward. That's not to say there's not going to be some distress in the office space, because I think there will be to a certain degree. But it's mostly going to be in the lower quality assets, the high quality new construction assets. Quite frankly, we think there's a very good possibility that we could see increasing rents and demand for that type of product because that's what companies are going to gravitate to in order to draw their employees back to the office.
Ted Klinck
Well, I think you're exactly right. We're seeing the flight to quality as well. And I think just in general, the activity we're seeing from a leasing perspective, and I think this will play maybe to the capital markets as well, is the leasing activity in the south is picking up, you know, after a dismal fourth quarter leasing. The activity we've seen in our portfolio has picked up materially. I think we're not back to pre-COVID levels just but the tour activity is probably depending on the market, 60 to 80 percent of pre-COVID activity. And we're converting more of those tours to actual leases now. So we're very encouraged. And the other thing I'm encouraged by seeing, we have companies are expanding now. They're more confident about their business. They're going to be hiring more employees. So I think that's just as the economy continues to open up. I'm encouraged by the leasing activity we're seeing.
Frank Fallon
Spencer, that, you know, in Atlanta 2020 was the second highest net absorption we've ever had. We had two portfolios that were selling during COVID one with over three hundred clients and the other with over two hundred. Both portfolios. This is up through the last 13 months. We're over ninety nine percent rent collection. And these are Class B assets too. So it's not all high credit Singleton and deals. This is the mom and Pops.
Geordy Johnson
To Will and Ted's point on office leasing, you know, I can speak to that as a customer, we decided to open a new office in Tampa at the end of last year, and I thought we were going to go down there and get a great deal and plenty of opportunities. The market was a lot more competitive and a lot tighter than I had anticipated because of the migration trends to the southeast of business wants to be here. Employees want to be here. We were fortunate to find a great partner in Home and Highwoods, but it was much more competitive and expensive market than I expected to see in the middle of a pandemic.
Spencer Levy
One of the questions we get a lot is interesting that you mention Tampa. I was on the phone last week with a large Israeli investor and they said, well, what's the next city up? And I said, well, Tampa. And they said, no, it's already up. It it's already Orlando. It's already Nashville. So let me ask that question. Give me a sense of other cities in the Southeast other than the big ones that you think might have be that next city up.
Geordy Johnson
I've got to plug Spartanburg here. It's my hometown and we're here. You know, I would say Tampa is definitely already happened. I say Greenville's on the map. People know about it from an office and a multifamily perspective. A lot of net immigration. I think Spartanburg is benefiting from that rising tide. I think Chattanooga, Huntsville, Alabama, has got a lot of government contractor defense type companies. I think there are a number of markets that are very attractive. I want to be careful how specific I get on this call because we are looking around.
Spencer Levy
Are there any areas in the Southeast that aren't doing as well? Maybe I'll turn to you, Ted, on that. On that point of view. You have a point of view on that.
Ted Klinck
You know, our footprint, we try and be in the higher growth of southeast markets. So I think we're highly focused on the demographics and some of the things we talked about earlier. Back in 2019, we did make the decision to exit the Memphis market. We were in Memphis for over 20 years and it was a good market force, but it just didn't have that growth profile. Tennessee is a great state's got no state income taxes, but we made the decision to get out of Memphis. Other than that, I think all of the markets we're in or growing at well in excess of the national averages and have all those same characteristics we've talked about.
Spencer Levy
There's an old political expression that demographics are destiny. I think demographics are everything in commercial real estate when it comes to talent, growth and otherwise.
Frank Fallon
Well, Spencer, demographics are. But when it comes to Memphis or Louisville, it's transportation. Right. So I don't disagree with Ted on the growth of office in Memphis. It is just opposite on the industrial. It's a five percent vacancy right now in Memphis. We are seeing new capital flood to that market right now. They had twelve and a half million square feet of net absorption last year. I think it's number six in the country, I mean, for a small market. So we are very high on those logistics based markets.
Spencer Levy
Well, I hate to bring up a food comment, but I had one of the best meals of my life at the rendezvous in Memphis with my fifteen year old son. And then we went down the street to the Cookie Kanuk and had these cookies that were made in like a pan, in any event, one of the best meals in my life. So my friends in Memphis, great industrial market, great food in a city on the rise.
Frank Fallon
Not a good market if you're on a diet.
Spencer Levy
There’s the one negative comment we'll say about Memphis.
Geordy Johnson
Frank, going back to your point on Memphis and capital flows there, obviously, it's a great transportation market and we all say Memphis. But going back to why people are attracted to the Southeast, incentives, taxes, labor, what we really mean is north Mississippi. And correct me if I'm wrong. And I mean, north Mississippi has eaten Memphis’s lunch when it comes to industrial development.
Frank Fallon
Geordy, we look at it as one big market. But you're right, the new development is in north Mississippi, quite honestly, because the land availability also that's where the land is. But, yeah, we still do a lot of business on the Tennessee side as well as Mississippi.
Will Yowell
So interesting. I would tell you, you know, your question about are there markets that are not performing as well? It's really hard to match yourself up against a Charlotte and Atlanta, Raleigh and Nashville from a growth perspective. But still, these markets are doing very well. We work in Memphis quite a bit, and it's a tougher market to sell than, say, in Atlanta or a Charlotte. But there still a very strong growth dynamics and metrics behind those markets, and particularly if you compare them against other secondary and tertiary markets in, say, the Northeast or the Midwest, upper Midwest. So it's a relative basis.
Spencer Levy
So, Ted, let me ask you a question. I think it's fair to say that we're still having that argument between CBD and suburban buildings. Do you see any opportunities for conversion into other uses, like a life sciences that's part A and Part B post pandemic, putting aside the massive conversion to life sciences or multifamily, what are some of the changes you expect to see in your buildings from the physical plant to combat or avoid the next pandemic?
Ted Klinck
Sure. You know, the first question, the conversion, certainly you're seeing it on Life sciences specifically here in Raleigh, a lot of old one story, industrial buildings are being converted. Entire parks are being bought up just to try and meet the demand for life science in this market. You know, in other markets, we're seeing a lot of creative office, you know, industrial buildings that are in great urban areas that have close proximity to amenities and just good content. We're seeing those buildings get converted to creative office. So I think those are two examples of the type of conversions we're seeing. In terms of post pandemic changes in office. Look, I think, you know, new developments going to incorporate a lot of tech touchless technologies and things like that.
Geordy Johnson
Spencer, we've spent a lot of time looking at conversions of particularly lodging and multifamily is the most logical one kind of in our sector. And it's been challenging to make to make the math work and to make the type work for what the customer wants today. So we have focused more on reflagging hotels, up branding them versus changing uses. We still think new ones every time and ground up developments can be pretty attractive. We are thinking about how we design all of our buildings and improving those. You know, on the industrial side, Frank knows this. We're really listening in on thirty six foot clear and we've kind of redesigned several buildings recently to make sure we had that increase clear height, particularly on more urban locations that I don't want to call them last mile but but are close to that need. And we're doing our more buildings than we've done traditionally, you know, on all of our multifamily. We're just trying to be as sustainable and green as thoughtful. We have a big commitment as a company to clean energy and sustainability. We're in the process of developing about 100 megawatts of solar energy in South Carolina. So we're definitely committed to that. We this that, you know, investors are going to demand that customers are going to demand it. And we want South Carolina to be competitive, attracting the next Boeing, Volvo, BMW, Michelin. And I think those users are going to demand cleaner sources of energy than we've traditionally provided as a state.
Spencer Levy
Well, Geordy, I'm glad you brought up ESG because this gives me an opportunity to shamelessly advertise our episode next week, which is entirely on ESG. And we're going to be fortunate to be joined by three CEOs, Sonny Kalsi from Green Oak, Chuck Leitner CEO of CBRE, Global Investors and then my great friend Scott Dennis, the CEO of Invesco.
Let's turn now, folks, to infrastructure and what we talk about regionalism. And I look at the United States. I look at the northeast corridor and they're all connected by Amtrak. But then I take a look at the southeast and I see enormous investments being made in airports, in places like Nashville. So, Ted, from your perspective, first, what's the importance of infrastructure as you make your investment decisions? And I know that Joe Biden is looking to do a infrastructure plan right now. How important will infrastructure be for the future of southeastern real estate?
Ted Klinck
Look, I think infrastructure is certainly one of the biggest issues that's out there today and really has been for a really long time. So I think just given the growth of our markets, infrastructure is important, whether it's building new roads, airport expansions or fixing the older infrastructure that we have. So it's incredibly important. I do think our governments in the Southeast and our states, they're aware of it. They know it. It's on the forefront of their mind and they're going to figure it out. No major infrastructure project is easy to get funded. Never has been. But I think our governments, they're poised to figure it out.
Spencer Levy
And I would just add to that it's not easy to get funded. So that's why there's a big place for private industry in many of our largest investors have enormous funds squarely targeted at infrastructure. So I'll ask you the same question about infrastructure. And then I hate to quote one of my favorite movies. Which do you prefer, planes, trains or automobiles when coming to the types of infrastructure you look for, for your projects?
Geordy Johnson
Spencer, we certainly look at an area's ability to sustain growth through continuous infrastructure upgrades when we're making investment decisions. You know, this isn't a secret, but Atlanta probably has it done as well here as is a Charlotte or Tampa. Honestly, we want all three. We want airlift, we want trains and we want great roads. You've got to have all three if you made me pick. It depends on the product type and what we're developing. And I think about industrial. I would tell you, Memphis and Louisville are two examples of southeast cities that have driven their growth as a result of their air cargo exports. Frank touched on that earlier. I mean, FedEx for Memphis, UPS for Louisville. And we've developed industrial buildings in both markets with a lot of success. You know, for multifamily, you got to have good roads and an ability to get around to jobs.
Spencer Levy
Right. And Will, let me ask you the same question. I'm going to be specific now that I believe that Atlanta Hartsfield is the number one airport in the world in terms of total volume. And clearly we have seen a material fall off and that's probably not going to get back to pre-COVID levels were a couple of years ago, number one, the importance of infrastructure for your analysis and sale of office buildings. And number two, what impact do you think that the slowdown in air travel might have on Atlanta?
Will Yowell
Well, Spencer, I think that the airport is what has driven Atlanta's economy for so long. And you're exactly right. It's one of the busiest airports in the world, one of the largest airports and by many metrics. And I think that that's going to continue into the future. Many of the relocations that we've talked about previously by companies coming here, it's been driven by their ability for their employees and customers to be able to get to where they need to go efficiently, easily, without layover flights, et cetera. And so I think that's going to continue. Yes. Zoom, for lack of a better term, has disrupted some of that business travel and may change certain business travel for the foreseeable future. But I do believe there's still going to be a significant need for people to travel face to face. You know, people want to get together and know each other, you know, along those lines. So I think that's going to continue to make Atlanta's airport be a primary driver for growth in this region. You know, that's the same thing you're seeing that in places like Charlotte, like Nashville, as you referenced there, they're expanding their airport, Raleigh. All of these markets, by the way, you know, we all we've learned here this past year how global the world is and how connected we are. And so having those international flights that are so important out of some of these major airports is very important and I think will be even more so important as people want to get back out. There could be a lot of revenge travel that takes place here over the next, you know, a couple of years, quite frankly, where people want to get back out on the road.
Spencer Levy
You bet. Will and Frank, last to you. And I note that Will used the key word here, I believe, for industrial, which is global. And I would note with interest the ship that got stuck in the Suez Canal caused ripples through the industry. And I understand it's not going to clean up the supply chain for several months before we get back to where we were. So how important is infrastructure to the industrial sector and what do you look at when you're trying to find great assets for our investors?
Frank Fallon
Well, Spencer, it's critical, right? And Jordy hit on it in the Southeast. We are so fortunate to have the number one cargo airport in the world in Memphis beating out Hong Kong. And we have the number one passenger airport in Atlanta. Those are two huge drivers and UPS is right behind FedEx when it comes to that. So you see those based in the southeast is a big push. Look, as we travel in other markets that are growing, Charlotte, Northern Virginia, there's traffic problems and all those. And I look at it and say, listen, that's growth. I think you can go to some markets where there's no traffic. And that would bother me more.
Spencer Levy
Well, I think it was Yogi Berra said that restaurants so crowded, nobody goes there anymore. It's because my dad would say it's a high class problem to have some traffic problems, which, by the way, they have in Austin, Texas and Los Angeles and other cities that we consider to be the major hubs of the United States, if not the world. And so I'm going to ask everybody to go around the horn for your final thoughts on the southeast region, its future prospects and why they seem so bright. Let's start with you, Geordy. What's your point of view?
Geordy Johnson
I think we're going to continue to see the trends that we've talked about. They're going to continue to accelerate. People want to be in the southeast. We've got a great climate. We've got lower cost, nonunion labor, business friendly governments, incentives, great, particularly higher ed and K through 12 is improving. There's a lot to like, as we talked about earlier, natural resources, mountains, beaches, lakes, the people are here, the jobs are here, and companies want to be here.
Spencer Levy
Ted, your point of view.
Ted Klinck
Not a lot. That I think is a great answer. I'm as excited as I've ever been about our footprint. I think the acceleration to the southeast is just going to continue to accelerate. And I think we're poised to capture a lot of demand going forward.
Spencer Levy
Frank
Frank Fallon
Pro-business environment in a great place to live in the south, these two good things,.
Spencer Levy
Will.
Will Yowell
Spencer, I really, you know, echo everything that the other three have said, but I would really tie it back to talent. I think that the tech talent that's here and the draw of all those things that Geordy was talking about are going to make the Southeast really a strong winner, if you will, of going forward here for the foreseeable future.
Spencer Levy
OK, and now for the last question. Who is going to win the Masters this week, which is airing the same week as this episode, starting with you, Ted Klinck. Who's your pick?
Ted Klinck
Dustin Johnson is going to do a repeat. He's had a couple bad weeks, but I think he's getting his game in shape this week.
Spencer Levy
Geordy Johnson?
Geordy Johnson
You know, I got to go with my fellow South Carolinian, D.J.
Spencer Levy
Frank Phalen. Oh, my gosh. Let's go over to Will.
Spencer Levy
Will Yowell?
Will Yowell
Yes, Spencer, I'm going to go a little off here, but I'm hoping that Rory McIlroy finishes the grand slam and gets it done this year at the end, I guess.
Spencer Levy
OK, Frank…
Frank Fallon
I'm wrote down Dustin Johnson for this guy, said it, but I hate for us all three to be on the same. That's the kiss of death for me.
Spencer Levy
All right. Well, I'm going to go out on a limb and I'm going to say Daniel Berger, because Daniel Berger was very upset when he was shut out of being able to play in the Masters in November. He's got a little chip on his shoulder and he's top fifteen in the world. So with that, I want to thank four of the truly great real estate leaders of the southeastern United States. Gentlemen, thank you.
ALL
Thank Spencer. Thank you. Thanks Spencer.
Spencer Levy
For more insights on the development of the Southeast and the future of work, check out our newest reports Managing Corporate Real Estate, Leading and Emerging Practices and Labor Analytics, Tech Boom Interrupted, both of which could be found at cbre.com/TheWayForward. And for more on our show, including our latest 2021 Southeast US Outlook, a thoughtful analysis of market conditions across 18 different markets in this region. Please visit cbre.com/TheWeeklyTake. We welcome your feedback and suggestions and always appreciate when you share our show, subscribe rate and review us wherever you listen. Thanks again to all our great guests for their Southern hospitality and insights. And thank you as always for joining us. I'm Spencer Levy. Be smart, be safe. Be well.
.jpg)