#371 - Jack Fraker - President, Global Head of Industrial & Logistics @ Newmark - Macro Overview of Industrial Real Estate

Chris Powers: All right, Jack, welcome to the show. 

Jack Fraker: Thank you. I'm glad to be here. 

Chris Powers: I thought we would start by talking about one of your favorite business stories around Nokia mobile phones from ’94 to 2000. Why is that one of your favorite business stories? 

Jack Fraker: Well, I'm here in Fort Worth today, and Nokia had a distribution center at Centreport, which is in Fort Worth. And we cold called on them because we could tell that their truck court and parking lots were packed. And I had a person on our team and she started to- she did the first cold call. We thought it was a Korean company with the spelling of the name. But she couldn't get past the receptionist, so I went in and cold called on them and got all the way in there and found out it was from Finland and it was not Korean, and they had a 60, I found out with some questions that they had 60 million dollars of phones in the warehouse. And they had- in those days, you paid inventory taxes on the value of the product inside the warehouse. And at that time also, Hillwood was starting with Alliance, which is also Fort Worth. And they had a free port exemption. You didn't pay any taxes. So I told Nokia, you can save 3% per year on 60 million, and that's 1.8 million, which is more than your rent. And we got in there and started out with a distribution center deal. 

Chris Powers: In Alliance? 

Jack Fraker: At Alliance, yeah. And then we met all these senior executives from Finland and they told us their mission was to be bigger than Motorola, who was number one in the world at that time. And so to do that, they had to have a factory in the United States. And they said, you guys are pretty good with this warehouse, but can you work on a complicated manufacturing facility? And we said, yes, which we had not worked on something that complicated; nobody had. But long story short, they built a factory there thanks to Ross Brodie Jr. and his team. And they made- there's 33 million seconds in a year, and they made 30 million phones a year. So, they had this assembly line that they were making a phone every second. And it was a big success. And then they decided to have their North American headquarters in Dallas-Fort Worth. And they said, can you guys do office leasing and office deals? And we said yes, which we really- we could have, but not- we didn't realize what the scale was going to be. And this was after, this would have been in the mid-90s, and office was an unpopular property type to build speculatively or build to suit or at all. And so, we built a building with KDC, which was Steve Van Amburg. 

Chris Powers: He was on a few episodes ago. 

Jack Fraker: So, I don't know if he mentioned that deal, but it was- because nobody had built any office buildings in quite some time, and we had a competitive process to choose the best developer and the best site. So, that was a real start. And then, they continued to grow that space. Bill Vanderstraaten, has he been on here? 

Chris Powers: No, but I know Bill. 

Jack Fraker: So, Bill Vanderstraaten worked for Car America, and they were going to build some office buildings in the same area. They were going to build 900,000 square feet of speculative office space in Las Colinas. And we turned those speculative buildings into the headquarters for Nokia. And I'm making this story kind of corny, but then Nokia said, gosh, you guys seem to know the Dallas-Fort Worth area, but we're going to expand nationwide and all throughout the Western Hemisphere. Can you help us? Do you guys have any experience outside of Dallas? We said yes. That was the fun part of that story because we went all over the Western Hemisphere with Nokia, mostly office or R&D or factories in Canada, Ottawa, Vancouver, the whole West Coast, Silicon Valley area, Mexico City, all throughout Mexico, down into Argentina, Brazil, Chile, and Peru, all those places. So that was a highlight. 

Chris Powers: Did they know where they wanted to be, or was it upon y'all to keep giving them the next site or where they needed to be? 

Jack Fraker: They knew where they wanted to be. They gave us- and we might look at some other ancillary markets around there. But they wanted to be in the Silicon Valley. They wanted to be in Mountain View in particular. They wanted to- Ottawa, most people don't know this, I didn't know it, but has a real tech area. Dell, for example, had been up there for years and turned it into a technology area. Vancouver has some of that same similarities. And then they needed to be in South America to get into those markets. So they needed factories in Brazil and factories in Argentina and on the West Coast of South America. So most of those buildings were that type. I even bought, I'm joking, but I was like an office broker, and I wore cufflinks and stuff like that, not really, but I was doing more of that than industrial during that period of time. 

Chris Powers: So that was all office? 

Jack Fraker: Yeah, I mean, it was all office. 

Chris Powers: Was it build-to-suits or just putting them in existing buildings or both?

Jack Fraker: It was both. The one- a lot of build-to-suits though. 

Chris Powers: Okay, so just maybe I would assume- had you ever done a deal in Ottawa before you did Nokia's deal in Ottawa? 

Jack Fraker: No. 

Chris Powers: Okay, so the question is like, what's the process you go through? Because they obviously probably need to be there relatively quick. Who do you call in Ottawa or how do you get a deal done in a country you've never, or I guess- 

Jack Fraker: Yes, well, it helped that I was with CBRE. No, I'm sorry, I was at Cushman & Wakefield at that time, at Cushman & Wakefield and then later with CBRE. They have teams and professionals in those markets. So, I would always- I wouldn't just try to parachute in there. And when I say I, I need to change that to we because we had a whole team. We would find the best partner, local person with our company, or in some places, South America, it would be an SIOR, so I'm a member of the SIOR, and I don't hardly use it at all now. In fact, I don't. But I'm proud of it. But we would always find the best professional, whatever company it was, in those places. 

Chris Powers: All right, before we move into what's going on more in today's world, I want to go back 20 years or maybe I guess to the 80s, to what we were talking about at lunch. So, you were up, maybe it was, I don't know the exact area, you can fill in the gap, but you saw some deals sell to Prudential. And again, you've clarified this, but the rumor's always been that you invented investment sales in the industrial world. And you said it's not quite like that. But you started the story with there was a few buildings in Valwood that sold to Prudential. Let's just tell that story. What happened and how did this become a thing? 

Jack Fraker: I was an active industrial leasing broker, cold calling, making leases on a tenant rep basis, but also occasionally getting a landlord agency assignment. We also sold land sites to developers. Valwood was a great park back then, and I heard that these guys, Terry Darrow, who passed away recently, and another broker named Al Hildreth, they had their own company, and somehow they sold buildings to Prudential, which I had never heard of that before. And then I was working with, around that same time, I can't remember the exact dates, but I started working with Todd Platt, and he's a big part of my career. Today he's the CEO of Hillwood. But we- so we started seeing that these buildings could be sold, and we got a listing on a building near the Galleria in what's called the Metropolitan Business Park. And so, Todd and I were working on that building, and we sold it to, I forgot who we sold it to, but the second place buyer was LaSalle Partners. And we got a phone call from the guy at LaSalle, and we thought he was going to be mad at us because he didn't get the deal. But he called and complimented us and said, you guys did a great job for your client. I really wanted that building, but I lost it fair and square. You got the best price. And would you guys ever work outside of Dallas? It's similar to this Nokia story, but would you ever work outside of Dallas? And we said, sure. He said, well, we have some buildings, LaSalle does, in Columbus, Ohio, and I'd like to put you guys on the RFP recipient list. And don't get your hopes up because there's some really good teams up there in the Midwest. And we went up there, Todd and I, and we had another guy on our team that was our- sort of did all the financial work. And we literally rehearsed, and we went in there and took our coats off and rolled our sleeves up like we were industrial, hardworking, industrial people. And figuratively, that was great across the conference table from LaSalle people. And we had done some things that other people didn't do. We went to Columbus, Ohio, way before the pitch. We walked every truck court and saw what the dimensions were because we wanted to distinguish ourselves from some sophisticated financial brokers. We wanted to say that we know the buildings, what occupiers want. And we did that. And the other team that came in from, I think it was CBRE, they weren't called CBRE back then, it was just CB Commercial. They were smart as heck and they did office buildings, any kind of income producing asset sale. But they didn't demonstrate that they knew the buildings. So that's how we got that business. And so, then we sold it to a REIT, but second place guy on that deal was AEW. And AEW called us up, and we thought they were going to be upset with us. And they said, you guys did a good job for your client. We have some buildings in Nashville and Houston. And we'll put you on the RFP recipient list, but don't get your hopes up. And so we did the same thing there. We went to Nashville. We went to Houston. And we had brokers that we could work with with our company that would help us, local industrial leasing brokers. And then we convinced the guys at AEW to add some more scale to it. So they said, all we have is Miami. And they said these Miami buildings were small tenant. Houston is on the ship channel. Those are giant bulk buildings. Nashville is a different type of building too. And they said that you shouldn't put that together as a portfolio, even though it creates scale. And we told them we thought that those different asset classes would be complimentary diversification to the investor. And so we got that assignment. And I really just kept going on and on from there. I think we sold those buildings to TA Associates. And so we got business with TA. And so, we did- we didn't invent the investment sales for industrial, but we were there at the beginning. And a lot of those ideas were our ideas. 

Chris Powers: What was happening- and what year was that? When did the Prudential thing start? 

Jack Fraker: Let's see, Prudential and Valwood would have been late 80s. 

Chris Powers: Okay, so what was happening before then? If somebody sold a building, it would just be to like another local investor group? 

Jack Fraker: A lot of investment sales that way and then occasionally Prudential kind of made the asset class an institutional asset class. We look back today, it's Aprisa. I think it still exists today as one of the top funds, but so many of those deals were a bank would buy it or a high net worth represented by a bank. I'm sure there was institutional sales because those were the early days of Trammell Crowe and Vantage, and Vantage had Metropolitan Life Insurance Company, and Crowe had a lot of different groups too. So it was becoming institutional mostly on the development, but the sales were just getting started. And REITs didn't get started until ’92 or ’90. 

Chris Powers: Now let's fast forward to today. How would you say industrial is positioned globally? How is it thought of in the capital markets? Like if this is where you spend all your time, how is the world thinking about industrial today? 

Jack Fraker: Well, can I go back and say one more thing? I should have said earlier because even when we were doing those investment sales, we were still doing day-to-day leasing, still working tenant rep deals, and that complemented our capital markets, made us sort of a sector expert. But today, the industrial real estate class, as many people say, it's the most popular asset class in the world. And they don't call it industrial in other parts of the world, they call it logistics. And I was one time in Singapore, giving a overview of the US market and to a giant ballroom full of Asian investors. And I thought I was on my game that day. I made it funny and real anecdotes so people could understand it. And they gave me a smattering of applause at the end. And then this one man, I said, I'll take some questions, and this one man stands up and says, that was very interesting, but can you talk about logistics? He thought I was talking about industrial like a factory or manufacturing. But anyway, it's become the most popular asset class for so many different reasons. For years and years and years, all these overseas investors would buy Manhattan office buildings because all those buildings are a million square feet each, a thousand dollars a square foot. It's a billion dollar deal, every one of those. That's the only way Asians and overseas European investors could get money, big money out in one fell swoop. And it turns out, I hate that I'm going to say this, but that asset class doesn't provide the same returns, costs a lot of money to release the space anytime a tenant comes up for renewal. But there was never big opportunities for Asian investors and European investors until we started seeing big portfolios, multiple buildings, multiple cities. And so now you can spend $1 billion or $5 billion on these portfolios. And that gets the attention of Middle East, Asian, and European investors. And it doesn't cost much to operate. If a tenant moves out, you just have to, I'm exaggerating, but just paint and add a little bit of office. And then the fundamentals were so strong, they actually got supercharged, as you know, during COVID because everything, the online e-commerce sector exploded during that period of time. My own mother, she didn't know what I really did for a living. She knew I was generally in the real estate business. But she had some friends at bridge club that were working for a residential, Ebby Halliday or something. She thought I was doing something like that. But when COVID happened, she could- Her grandkids would help her buy stuff online, and I would say, mom, that thing you just bought, that was in a warehouse yesterday, and that's what I do, mom, warehouses. So finally, the whole industry, the whole world, the whole population understood the importance of distribution centers. 

Chris Powers: Okay. Speaking of Asia, and somebody- I reached out to get some thoughts and ideas of what to ask, and somebody said, I believe Jack was on a long trip to Asia recently. Beyond Samsung, many companies out of China and South Korea are starting to think about their supply chain differently. We talked about this at lunch. We just received news we have a new president, which is going to encourage bringing manufacturing into America. And so, can you speak to how the world is looking at America right now as it relates to industrial with the threat of tariffs or a pro-business, bring your business to America? 

Jack Fraker: Yes, I think that's really happening. I was over there maybe two months ago, Japan, Tokyo, Seoul, and Singapore. We had 45 meetings in five days. And I looked at the agenda that somebody had prepared. I said, well, wait a minute. I don't see where our hotel is on Thursday night. And they said, we're not- there's no hotel. We're going to sleep on the plane. Because those planes, you can get horizontal in your seat. So, we had so many meetings, and everybody wanted to hear from us, and there was a couple more people with me. One person wanted to talk about office, and one person wanted to talk about multifamily, and these people were very polite, but they really told the person that wanted to talk about office that they didn't really want to talk about that. They wanted to talk about industry or logistics and apartments. 

Chris Powers: Is that as an investor or is that as bringing their business into America? 

Jack Fraker: Well, it's a little bit of both. So mostly it's as an investor. But I think somebody told you maybe companies like Samsung, they have giant investment funds and they have their own employee pension fund, but there are also products, Samsung products all over the United States. And then if you think about all the Korean companies that are here, so that is a trend that's starting to happen. So investors in Korea want to invest in real estate near Korean companies. And better yet, if it's a building 100% leased by a Korean company, they have strategies to identify that. And it's not just Koreans, the Japanese think the same way on that. 

Chris Powers: Is there a time horizon for how long they'll stay in these deals different from American investors? 

Jack Fraker: I mean, they do all that math on their three, five, seven, ten year hold, but I think they're longer term. They want to be longer term. There are some differences. So for example, Diamond Realty, which is a part of Mitsubishi, next time you drive on the freeway, you see a Mitsubishi car, it's got this little logo, which is a series of diamonds. That's where the name comes from. But Diamond has a merchant build philosophy. They build these buildings and lease them, stabilize them, and sell them, whether it's apartments, they're active in apartments and also logistics. But generally speaking, most of them have a longer term hold. 

Chris Powers: Is it harder to close a deal that you're selling to a foreign investor than an American investor? Is there any difference? 

Jack Fraker: No. All the math is the same. They all look at the same things. And nowadays in 2024, there's so much information available on the fundamentals. We didn't have any of that back in the old days. We'd have to do our own aerial photographs and get a mark slot and outline the building. Now, with all the technology that's there, it's easier to underwrite them from a physical perspective, location perspective. The math is all the same. And then once you get into it, it's a- I don't think it's that much longer. People say it is, but if it's a big deal that they really want, it's pretty quick. The time zone difference has been a problem in the past. Our analysts and I have been on some of these calls late at night. And then there's a language problem. Some of the people that we talk to speak perfect English. I don't speak Mandarin or anything. So, it has to be in English, and it's difficult for some of those groups to speak English that you can understand. But that's the only difference or problem I've seen on some of them. 

Chris Powers: If it's like money from the Middle East, do they do- or even Asia or anywhere, do they do like background checks on who's in the ownership group? Does that take time or is that, do the buyers- does that international money already have that kind of flushed out to where they can provide that data day one and make it quick? 

Jack Fraker: Know your customer and all of those requirements. And that does go on, so it goes on every deal. We sell some properties to the Chinese government. They have a big real estate investment platform. It's based in the United States, but they get asked that question all the time. And if it was right next to an Air Force base or something like that, there'd be more questions about it, but they have that protocol down pretty easy now. 

Chris Powers: So, coming off the highs of ’22, rates started going up. Like what have you experienced maybe the last couple of years heading into where we are today? Transactions are down, a lot of developers laid down. But how have you viewed the market the last two years? And then we'll talk about from here forward. 

Jack Fraker: Yeah. So, I joined Newmark in ’23. And so the timing wasn't very good. And last year was a really slow market, slow period from a capital markets perspective. Interest rates never had changed that many times in such a compressed period of time. And so that caused all kinds of uncertainty, and so volume was way down. It's starting to pick up now, with some clarity in where interest rates are going or where they are now. We've had some of the biggest investors you can think of, you can say two or three names and you'd be guessing them, but they told us that in the back of their minds, they were hoping for some continued cap rate expansion so they could buy these properties at higher cap rates. And they finally realized, whenever that was, Jerome Powell started to lower the discount rate. So, then they realized they don't want to have- literally one of them said, we don't want to have FOMO, which is a young person, kids’ word, but they didn't want to miss out on an asset class they really like, they had conviction, which is the US industrial logistics sector. So now those types of groups are coming back in scale. So the forecast that we have, we think it's going to be a strong market, especially next year. And then that trip, back to that trip in Asia, I said we had 45 meetings. It's almost as if they all read from the same script. They love our asset class. They love the US as the safest place in the world to invest. They all said, we're going to wait until the first quarter of ’25. You're going to have a big election in your country, the United States. We're going to see where the Fed takes rates. So, we want to be back in the US in a big way, but starting in ’25. So that gives us encouragement it's going to be a big year next year. And then also the interest rates went up so fast, it almost- it certainly tempered, if not almost stopped, speculative construction. The great developers could not get a loan, construction loan. So, we've had a decrease in supply, and yet somewhat constant tenant demand. So more demand than supply is good for property owners. So, there's going to be tremendous rental rate growth in my opinion, by the first quarter, second quarter, certainly in ’25. And most of my career, and I said this yesterday at that other deal, but most of my career, we had to infer the possibility of rental rate growth because it never happened. Rents never changed. And in Dallas, it was always $3 a square foot for 20 years. And we would sell these packages and we would put together financial models. I don't think it was called Argus 20 years ago, but we would have a model, and we would always put some sort of rental rate growth in our model. And as I said earlier, we'd always get the best local industrial broker to be part of our team. And I remember one time this broker, I told the client that we have 3% growth in our model, and this broker, our local broker said, well, they've never grown in 20 years. So I had to kick the guy under the table, not to say that. And then the next time, we had another trip on the tour on that same trip, and this one broker in New Jersey said I'm never going to lie. My word is my bond. And I said, I'm not asking you to lie at all. I don't want you to lie ever. But can you use your imagination that rents could go up over time? And he agreed to use his imagination, and we were touring somebody. He literally, the guy, the buyer was in the backseat with me, we're driving to see some buildings, and the smart acquisitions guy said, what about rental rate growth? And this broker that we had turned his rear view mirror around, so that he could- and he said, rents are going to go up, I forgot what he said, but then he started winking at me, and this person next to me could see that wink. So he ruined the whole story. But anyway, I do think rents are going to go up. Right now, there's more demand than supply. And especially the south part of the United States, Sunbelt states as we call them, it's where the population's going. Some of that was shown on the election maps a couple nights ago. And we still have population growth. So, the rest of the world doesn't have- Western Europe has no population growth. Korea is the lowest in the whole world for population growth; it is 0.6 per couple. You're supposed to have 2.1. We still have just around 2 or maybe 2.1, and we have it from immigration. That's been a big headline and topic, but we're growing still that way. 

Chris Powers: Did rents dip at all during the last two years? Because at one point, we had delivered a lot of supply. Did rents dip at all over the last two years or did they hold pretty flat? 

Jack Fraker: That's a great question because they did dip for the large million square foot buildings. And it's macho and exciting to go out and build a million square foot building. You get the mayor to come out and cut the ribbon. But if everybody builds it, it's not good. At one point in time, I think last year, there were 18 or 19 one million square foot buildings for lease in the greater Dallas area. And so that's not good for anybody. And I did one of my last tenant rep day deals from yesteryear was for a company that needed a million square feet. We were going to likely renew where we were, but we looked around those 18 vacant one million square foot buildings, and those landlords were prepared to make a low deal. But now they've gradually been leased up. And so that was the only time they dipped. The United States has, let's say, plus or minus 25 billion of industrial real estate, and it's shaped like a pyramid, though. At the very top of that pyramid are the one million square footers I just talked about. But most of the inventory is smaller tenants, and the biggest piece are really small tenants, and nobody's building that speculatively. We talked about this at lunch. And so, the physical stock that's still there can really command landlord pricing pressure. 

Chris Powers: What is- You've probably seen a lot of spec buildings over your career, but maybe, and the buildings are getting more specialized today. But if a developer was listening to this, what do good, let's maybe put it in the million square foot category, if you're building a million, what does a good spec developer do that builds a million and what does a bad spec developer do that builds a million? I'm sure you can walk through 18 buildings and go, man, I can't believe they did this or these guys hit it right on the head, they did it perfectly. What should they be thinking about if they're building spec? 

Jack Fraker: Well, I mean, the tendency is to build as much as you can on the site. And you get greater returns if it leases up that way. So, you can see where they've cut corners to build more square feet on the site, not leaving enough room for large trailer courts or trailer excess trailer parking on the site. Those are the better ones. So, clear height and things like that are pretty standard nowadays. Some groups may compromise on the best floor, super flat floor construction, compromise on lapidolith floors or different types of concrete treatments. So, you can see that if that happens. And with these modern occupiers that are using as much of that clear height as they can, those floors have to be really flat so that the forklift can carry a pallet way up high. And if they hit some sort of imperfection in the floor, they could literally tip over and something might fall off. So, the best developers pick up on those kind of things. Nowadays, there's smart developers are building power charging infrastructure into the truck court because one day we'll have more EV trucks for local delivery, not so much for over the road across large, long distances. So we're seeing that. So they go ahead and do all of that. They build a groove and put the electrical power and go all the way out into the truck court so you can charge something in the future or certainly have it at the truck door. So those kind of things. Some developers paint everything white even if it's speculatively on the roof deck and walls, and others don't. So you get some light reflection better if you do that. Nowadays, we're starting to see all that power hook up for solar panels on the roof. And then the solar panels in yesteryear would be set up to put power into the grid, but now many of the tenants themselves are just electrifying their truck court or their office space with those solar panels. So, the developers that talk about that, if you're comparing, if we're out there with the least prospect, we show them those differences. 

Chris Powers: Okay. I never heard this. So, on a flat floor, would this just be like developer error that there were some like seams or some weird spots where the concrete was laid, or they just have it designed it that way? 

Jack Fraker: I mean, you know what, they may have designed it and then the contractor didn't follow it exactly right. So, I mean, this table surface here is flat, right? But if it was warped in any way, it's the same sort of concept. So usually, I mean, they design it, but if they don't design it correctly or they pour the concrete when it's a rainy day or a damp day or too hot of a day, they have to do it just right, otherwise the concrete doesn't cure perfectly. 

Chris Powers: Does the exterior matter? Like are people saying, we want something that looks nicer? Are they willing to pay more for it, or is it just to help you stand out in a sea of 18 vacant buildings? 

Jack Fraker: They're not really willing to pay more for it. And so that's- but it does look nicer. And way back in the day, and I'm telling you all these old historical things, some developers never wanted to paint the exterior of the building. They said, gosh, we'll have to be out here in five or ten years repainting the building. Instead, they used an aggregate rock, they used rock. So that Valwood Park I talked about, they would use different types of stone, I forgot the names of them now, but you can get Texarkana stone was was bigger than Bridgeport stone. Bridgeport was a little bit nicer looking because it was smaller stone than the Texarkana river rock was big rocks. And that just doesn't look good. I mean, those now look, noticeably look worse than the painted buildings. 

Chris Powers: Real quick, just going back to something you said, you said rents never went up, but then they did. Was there a catalyst? Do you remember the era that they started to trend up? Was it e-commerce moving into the space?

Jack Fraker: Certainly e-commerce they started, there was so much tenant demand and rent started- the demand was way exceeding supply, and the US supply today is still 340 million square feet per year, which sounds big, but that number was 600 million a couple years ago. So, the supply is trying to catch up, but that's how much demand there was. So the rents went up dramatically. And then everything else went up. Land prices went up, construction materials went up, and as a result, rents had to go up. So there's just a lot of variables that impacted it. The period of time that I said nothing ever changed would have been 80s, I mean, I wasn't doing this in the late 70s, but from 1980 to- 1975 to 1990, they were probably flat every year. 

Chris Powers: Is there an argument to be made as these bigger warehouses start automating more robotics, AI, they're going to be able to get a lot more efficient within the walls? That's going to put pressure on rents because the money that they can make out of any one factory is going to dramatically increase? 

Jack Fraker: I mean, that's a big trend happening, robotics. A robot doesn't have a sick day or a pension plan. 

Chris Powers: It doesn't go to bed either. 

Jack Fraker: It doesn't go to bed. You don't need as many bathrooms in there probably for robots, but that's a real big trend that's happening. It takes a lot of power to run these big buildings. Everybody talks about data centers, but a big warehouse like that can use a lot of power to operate all that lighting, air conditioning, robots, truck court charging and all that stuff. So that's coming too. 

Chris Powers: Is power one of the limiting factors right now? And we can take Texas since we're here, but maybe you can talk to other parts of the country. Is power what's stopping a lot of new development because you just can't get it or is it-?

Jack Fraker: It's competing with data centers, which take- there's data center anecdotes that they- a particular data center may take as much power as the city of Tyler. So that's going on. And so industrial logistics properties have to compete with that power user. So that is a limiting factor in some ways. 

Chris Powers: What's going on down in Mexico? What are you seeing happen in Mexico? 

Jack Fraker: So, Mexico has 130 million people. And it's got, what is the statistic? It has 750 million square feet in the whole country of Mexico of logistics properties. And then Dallas Fort Worth has a billion. They have 8 or 9 million people or 8 million people versus 130. But it's got really- it's got an ever increasing middle class. And it's low cost of labor. It's right next to the United States, the biggest consumer country in the world. And it's booming in Mexico right now. And you watch the headlines about drug cartels and corruption. That goes on. But mostly these business parks, industrial parks look just like the same business park in the United States. Very good buildings. The rent rolls on the properties that we sell down there have better credit than a rent roll we sell in the United States. Usually there's a parent company guarantee on just about every lease. And then in many cases, the tenants put their own money into the tenant improvements. So the industrial real estate, and it's now being discovered, a lot of big institutions are down there and they have been there for years in the past. I mean, I know we've done billions in Mexico of institutional investment sales in Mexico. So, that's a great market to watch. 

Chris Powers: American buyers buy in Mexico or more...? 

Jack Fraker: American, Canadian. We did a bunch of deals with Canadian investors down there. It may be, if it's an American investor, it may be a fund populated with foreign investors. There's been some, we mentioned Korea and Japan, those groups, they're doing a lot of factories, and in some cases, they buy those properties too. There's been Middle Eastern money, but it may primarily be with an American partner. 

Chris Powers: And then how do you see that playing into Texas? So, like how do you think industrial will shake out across Texas over maybe the next five or ten years? Where is it going to happen? 

Jack Fraker: It's going to be, well, Interstate 35, which was called the NAFTA highway, but goes from Laredo to Minneapolis. And so, Laredo is the busiest port, not maybe today, it might be back to Long Beach, but insofar as tonnage and containers, Laredo is the busiest. And everything that's manufactured in Mexico gets on I-35 somehow. So, Laredo is a great market, doesn't happen to be a big city on the US side. And so I think it's got a big future ahead of it for Mexico. Cities like El Paso, you're familiar with El Paso. And at one point in time, and I don't know if it's true today, but El Paso was the safest city in the United States because it's got a great municipal government, police force. It has several Air Force bases, military bases. And it's US Customs. I mean, it's a safe place, El Paso. So that's right across the river from Juarez, which has manufacturing. So that's a great market. I like that in many ways more so than Laredo. Laredo is pretty much trucks coming from Mexico into the United States, those queues, excuse me, those queues could take 18 hours. So they're trying to expand the infrastructure. The Mexico side is and the US side is, so that'll be better over time. But let's just face it, it's made overseas and comes into the United States, and it's less expensive to truck it into the United States from Mexico than it is to ship it across the Pacific Ocean in a container ship. 

Chris Powers: Or by Houston. 

Jack Fraker: Houston's great also. It's a big export town, not just oil and agricultural products, but a wide variety of things. And then it comes in. It's got the perfect port infrastructure that they've been working on for years, and Houston is 45 miles from the Gulf of Mexico. They have this really sophisticated channel system so a bright future ahead for Houston as well. It's one of the big, whatever it is, I think it's the fourth or fifth largest city in the United States population wise. Can I take a sip of this? 

Chris Powers: For sure. Take as many sips. I'll take a sip too. So you said- so going back to development for a second. So now people kind of have a cleaner sight of maybe what the future looks like with interest rates at least for now having settled and Powell giving some direction. Are the developers starting to develop again or have they said like when they're going to start projects again? 

Jack Fraker: Yes, so they are. It's here in Dallas and Fort Worth. There's so many projects that are getting ready to be announced and companies like Newmark and others do great research and have reports available, and I think Dallas-Fort Worth has the largest development pipeline on the boards than any place else. 

Chris Powers: Spec or build to suit or both? 

Jack Fraker: I think it's mostly spec. You could call- some of it is build to suit. They have those phrases in Mexico, this is how- going back to Mexico, they have so many what they call spec to suit. So, they finally get the building started speculatively, but it's leased in the first month or pre-leased before the first bulldozer gets out to the site. And we had that here in the United States too. Typically, a developer would plan nine months to lease it up or a year post-completion, but there were so many examples of a building being leased well before it was finished. 

Chris Powers: Are there sizes of buildings right now that aren't in favor or not getting leased, or is everything across the board getting leased? 

Jack Fraker: I think everything across the board. I can't remember if we talked about this at lunch or just now, but the US inventory's shaped like a pyramid. And there's nobody building these speculative buildings for smaller tenants. And then we've had some deals that are buildings that might be developed in 1980. And an acquisitions person will say, this building's obsolete for the following 25 reasons. But we always say, well, look, it's just surrounded by population. It might have been on the outskirts 25 years ago, but now it's completely infill. So infill buildings, I think in general, is a great place for investors. I don't think I'm speaking out of school to say this, but we're working with Harlan Crow's son, who's a chip off the old block because he's heard about real estate his whole life, and he's building a speculative 80,000 square foot building in one of our largest submarkets, which is the Brook Hollow area. So, Brook Hollow probably has 65, 70 million square feet of tenants. Every one of those buildings, of those 70 million are obsolete and from a physical specifications and features perspective, but the tenants that are in there would like to get a bigger truck or a higher clear height. So he's building a modern building, small. It's not as exciting or I use the word macho to build that, but he has tenants lined up to lease it at really good lease rates because he took the effort to build a small building. So I think that could be a trend. It's for investors, developers to go into some of these older sub markets. It's certainly a trend right now in Northern New Jersey. I mean, those buildings were built in 1950. And so there's developers up there buying those old buildings, two or three of them on the same street, tearing them down and building a bigger building with more modern features. And they're getting them leased with that same example before they're finished. So, some of that could happen here in Dallas too. 

Chris Powers: So, if transaction activity is going to pick up next year, that means that sellers need to sell. Has there just been like a holding pattern in the last couple of years of people waiting and now that we're through the election, rents or rates, we kind of have view on them, everybody's saying next year we're ready to start moving forward?

Jack Fraker: I mean, some investors, they may have their assets in a fund with a finite life. And if the finite life came up in 2023, they would work to extend the life of the fund. And so, the ones that have extended it, that was a good decision because the market's going to be better. So, the market should be much better than it was two years ago, cap rates and other variables. So, we do see people that have been waiting to sell or getting ready to do some sales in ’25. 

Chris Powers: And buyers, they're saying, look, this is a safe asset class. It's one of the safest, if not the safest in the world. They're just willing to accept the pricing of today, knowing that the cap rates didn't expand as much as they needed to. 

Jack Fraker: They are. So, I talked about the fact that we had to infer rental rate growth, but there's so much information and research by great qualified companies and economic observers that there's going to be rental rate growth. So, if you buy something today at a relatively low cap rate, depending on the vintage of the rent roll, which investors now are looking for near-term rollover exposure. It could be as long as five years, although most investors want less than five years. And for most of my career, near-term rollover exposure was real scary to the investor, and now it's just the opposite. 

Chris Powers: On the new development stuff, what are the TI packages looking like in these newer buildings? I know at the conference yesterday, they seem to keep going higher and higher, but what are you seeing? 

Jack Fraker: They're much higher than they were historically, and there's examples where it's 10, 15 bucks a square foot, TI packages. And that's another reason why maybe the smaller assets, smaller physical buildings could be better because your capex should not be that high for paint and carpet and some of the- lighting. But the bigger buildings especially, they have really big TI packages. So that's just a trend that's there. You try to get the tenant to pay for it, and usually they do if they need that building. 

Chris Powers: You've been doing this now for decades. Like what's the data that you, after all these years, that you pay attention to the most as you think about the industry? Is there anything- there's probably some obvious ones. Is there anything you pay attention to that maybe somebody that's only been doing this a few years doesn't look at as much? 

Jack Fraker: Well, I will say this. I have the benefit of working for these big companies and all of that information is available. So, you know how much absorption is, those statistics are available, Google Earth photographs and all of that. I mean, I go back so far that, let's say back in the 80s with the savings and loan crisis, every developer and his brother and his sister could go out on the same day and build the same building on the same street. There were no controls in place. So, the things I look at are other people's reports, various- our reports are great, but look at everybody else's reports, get a feel for what's happening in the market. Lease comps are readily available. So I look at those kind of fundamentals. This is another anecdote back to the past, but read the papers. So back in the day, there was another firm that made every one of its brokers read the Wall Street Journal before they got to work. And they would look- they don't have to read the editorials or everything like that, but just look for headlines about companies. And so, I still follow that, see what companies are growing, which ones are contracting, that type of information. 

Chris Powers: Do you look at demographic information or traffic patterns and all that? 

Jack Fraker: I mean, I don't really look at the traffic patterns. I can get those reports, but I look at demographics. And we are here in Texas, no state income tax, really low cost of living compared to other parts of the country. And I look at all of that because that's, I mean, you see these studies that show that Dallas-Fort Worth is going to be the largest city in the United States in 50 years. And I think that's really happening with the example that there's a 747 with 500 people that lands here every day, theoretically, figuratively, and then all 500 get off and then nobody gets back on to fly back. So I think that’s what the population growth is. So, I look at that. Housing, I actually study, or don't study, but keep up on the residential development, where is that happening? And some of these places, North Dallas suburbs, there's been speculative warehouses built out there that are getting leased to complement and support the population growth. 

Chris Powers: You said something on your way in. You said you were on a call, and to the extent you can share any of it, it was just interesting, the retail to industrial talk. I haven't heard that. 

Jack Fraker: Yes. So, there's an obvious correlation from retail to warehouses, and it's starting to be studied more and more. This table, this clothing was all, maybe we bought it at a retail store, but before that, it was in a warehouse. And it's just really being more and more connected. And some of the big groups, I can probably say this, Blackstone, they're putting a big focus now on retail. As you and I were talking about, nothing's been built speculatively for retail in these cities. And retail took a little bit of a hit, I guess, when e-commerce took off. But people still like to shop, go out and shop, and especially if there's no new supply, the existing retail stock, physical inventory is going to do great. And all about supply chain studies and all of that is really, the industry is getting more and more sophisticated. 

Chris Powers: Is there anything from a technology standpoint, any trends that you're seeing that are interesting that are emerging or as you just think from a tech spot, how these buildings are built, how logistics are set up, like what's interesting in the technology side of things? 

Jack Fraker: So an overused expression but it really is out there is AI and you can do simple things like help write a memo with AI, but some smart investors are using AI tools to study the patterns of the tenants and study the tenants’ business and why that tenant is leasing that building, and why they really, really, really don't ever want to leave it. And if you understand the tenant that deeply and understand their supply chain, as we just talked about, then the landlord can push rents dramatically. And so we've seen that. We had a deal that was, that one of the investors had their own proprietary AI system and they, I hope they're not listening, but they outbid everybody else on that spreadsheet because they understood the tenants in those buildings so much better than anybody else did. They knew that tenant could not afford to move down the highway for a lower rent. They had to be right there to support their customers. So those kinds of tools, AI is happening from an underwriting perspective. I mean, there's one group that has their own sort of AI system, and they put the building through a little analysis, and if it doesn't check all their boxes, so to speak, they don't spend any time on it. So there's that kind of AI technology tool that we're seeing. And then the other ones that study the tenant and supply chain considerations. 

Chris Powers: Is it becoming- they're outfitting these buildings with so much now and just the time it takes to move and permit new buildings and everything. Is it becoming harder for tenants to move around just in general, just because stuff's hard to get done? 

Jack Fraker: Yes. The expression NIMBYism. So, I was with these, a really good client about two, let's say 2021, and they kept talking about NIMBYism, and they said, Jack, you know what we're talking about, right? I said, yeah. And I got back and I asked somebody else, what is NIMBYism? And they said that's an acronym, not in my backyard. Which all of that started in California probably or places like that. But it's happening here in Dallas-Fort Worth, so you can't get buildings built as easily. People don't want to have tractor-trailers driving close to their neighborhoods. And so it is- I mean, over time, I think tenants will move, especially it depends on the tenant profile, if it's a national or regional distribution operation, they can move outside of Dallas and Fort Worth. So, we'll start to see that. I went to Austin on Interstate 35 a few weeks ago and I saw a speculative warehouse. I don't know if it was in Temple, but it was south of Waco. It was around Waco. But you don't see many speculative buildings down there, but that tenant may be operating throughout the southwest, and so they don't necessarily have to be in Dallas. 

Chris Powers: They just need to worry about, I guess, labor or something... 

Jack Fraker: Those are considerations. 

Chris Powers: Okay. So, you have- when some brokers are selling stuff, they're selling million dollar deals, they're selling $10 million, they're selling $100 million deals. You sell deals that are in the multi billions of dollars. I don't know what the largest one you've ever done is, but let's just call it a $5 billion transaction. Is that any different than a hundred million dollars? Is the capital different or is it just bigger checks and bigger banks or is it syndicated? Like how do these massive deals get done? 

Jack Fraker: I'm so glad you asked that question because that was at one time part of our spiel, so to speak. We would show our track record and we would show the track record that had a five billion dollar deal, and then we would say in the same calendar year, look at the bottom of that track record. We did a five million dollar deal. And we would say we want you to call that five million dollar client and ask were we on top of it, did I hand it off, or was the whole team involved? Because we wanted to distinguish ourselves that that $5 million client got the same level of focus and expertise as the $5 billion. And it's true. We work on all of those just as hard. And then I have in my office, somebody gave me- I made this comment one time, and somebody went out and found an actual Rod Carew baseball card. And Rod Carew is in the Hall of Fame. And I don't know if this number is exactly right, but he only hit 15 home runs in a 20-year career. He hit singles and doubles and was on base all the time, was in the Hall of Fame. And so, you can make a great living and be a good acquirer of buildings if you're prepared to do- have the discipline to buy small buildings one at a time. And I don't think it's a problem for me to mention this one group, but TA Realty Associates, they're a giant group based in Boston with a really sophisticated big team, but they got their name in the industry from buying one building at a time, $10 or $20 million deals, and then they aggregate a portfolio. So, the source of capital may be different. I mean, not every big institution can spend the time to do a $10 million or $20 million deal, but some of the real smart ones do that. Even names like Blackstone, especially in 2023 when they weren't buying big portfolios, their team was still intact, it was buying small buildings. And as we said earlier, nobody's building those smaller buildings speculatively, so they have something going for them. 

Chris Powers: But on a $5 billion deal, is the requirement financially much different, or is it just somebody that's got a bigger equity check and is just a bigger lender, or is the thing syndicated out? Is there investment bankers involved? I just imagine that's such a big portfolio. 

Jack Fraker: So, I wish I had a whole long track record of $5 billion deals, but we know lots of billion dollar deals. And very rarely are investment bankers involved. We've been asked to team up with investment bankers before on a sales assignment, and we do. And we end up being good friends with, personally, with these investment banker guys. But we do more of the work. And because it gets down to granular underwriting and knowing the asset and knowing the market and all that kind of stuff. At the very end of the day, we go back and we compare, I'm exaggerating a little bit, the closing statement shows how much they got paid and how much we got paid. And it's a big difference in that regard. But the capital is different. Some major groups love the thesis of smaller buildings. They just don't- they can't back home in their country, they can't spend all their own resources on small deals. That's why they invest in funds with somebody else to do all that type of work. 

Chris Powers: Got it. All right, Jack, thanks for joining me today. 

Jack Fraker: Thank you. It's been great. I took notes about you personally, so don't be surprised if I follow up and ask you some questions too. 

Chris Powers: I'd love that. Thank you. 

Jack Fraker: Thank you.