Industrial real estate is ‘as strong as we’ve ever seen’: IRG CEO
John Mase, Industrial Realty Group CEO, joins Yahoo Finance’s Alexis Christoforous to discuss the impact of the pandemic on industrial real estate.
ALEXIS CHRISTOFOROUS: Welcome back. Private real estate owner and developer Industrial Realty Group announced recently that it raised $335 million in private funds through Goldman Sachs. The firm is active around the country with about 100 million square feet of rentable space for current tenants that includes some big names, Amazon, International Paper, and others. Joining me now is the company's CEO, John Mase.
John, good to see you here. Before we delve into that money that you just raised, give us a feel for what your industry is going through right now as we come out the other side of the pandemic. What has demand been like for your real estate?
JOHN MASE: Overall, demand has been about as strong as I've ever seen it in the last 35 years that I've been in the business. We've been through lots of cycles. Everybody was uncertain what was going to happen in the first and second quarter of last year. But since then, frankly it's been pretty gangbuster throughout the country and our entire industrial space.
We're in 31 different states, so we have a pretty good feel for how industry is impacted, from the class A markets to a lot of the B or C markets, a lot of the secondary markets as well. It's been as strong as we've ever seen.
ALEXIS CHRISTOFOROUS: Wow, so talk to me about where that demand is coming from. Is it-- is it sector specific?
JOHN MASE: You know, it's interesting. It's not. We're seeing it all over the place. Where our company differs from a lot of other standard industrial companies is we don't just own large big boxes, getting freight that comes in from the rest of the world. But we buy a lot of projects that are manufacturing and assembly, and we're seeing a huge amount of production coming back to the US. We're strong in the Midwest. So we're seeing it throughout Ohio, Indiana, and Michigan, particularly in the Detroit area.
We buy a lot of projects that we're downsized over the last 25 years from major corporations. And our task is to refurbish these and bring in new tenants. And we've never seen such a great influx of new tenants as we have over the last-- over the last couple of years, not just the pandemic. It started before, but I think it even proliferated more since the pandemic hit.
ALEXIS CHRISTOFOROUS: That's definitely encouraging. When we were really in the throes of things last year, what was the situation like? Were people defaulting, not being able to make their payments on these properties? Did you see places fold? What were things like when we were at the height of the pandemic?
JOHN MASE: Well, we took a really aggressive approach, and we had our whole team nationwide go talk to every single one of our tenants. And if they needed relief, we told them to come talk to us. The reality is our collections were 97% for the year, which is about average of what it normally is, which means a lot of our tenants were not significantly impacted.
Some of ours were impacted favorably and as rents-- or as leases were coming up, the renewal rates were higher than we'd even seen previously. In most of the industrial space, rent is not one of the bigger line items of expenses for these companies. So a lot of what they're looking for is a quality building in a quality location, and they're willing to pay for it.
We've seen rent increases over the last three or four years anywhere between 10% and 30% in most of our markets. And I don't recall seeing that for many years.
ALEXIS CHRISTOFOROUS: I have to say, I think you're the envy of the real estate industry, you know, your particular niche of the real estate industry. Because so much of that space right now is hurting. We see office space going empty, sitting empty here in New York City. Lots of people who left large cities have left a big dent in the rental market. Are you expecting prices in your area and the industrial real estate space to continue to move higher, and by how much, do you think?
JOHN MASE: Well, it's a great question. And first of all, commercial space is slower than industrial. We do own some commercial, and so we're suffering like other people. But it's a very, very small part of our portfolio. But what's also happened is with interest rates being so, so low, credit being relatively available, cap rates as a result have decreased. And when cap rates decrease, rental values go up.
So in our space, we sell very rarely, but the prices we are getting are pretty eye popping, so we'll sell a couple of projects a year where we'll buy 10 or 20 in a year. So what we're seeing available, though, are projects that need to be refurbished, rehabbed, some closed down facilities. We've bought a couple of malls. We bought a couple of General Motors plants over the last couple of years.
And those we have the ability to turn those around, convert them to industrial. It takes anywhere between one and three, four years to do the full conversion. And then, because demand is so high, we're able to get industrial rates for projects when we're paying a much lower purchase price for an asset that had a previous use.
ALEXIS CHRISTOFOROUS: Before I let you go, John, we started out by saying you raised $335 million in private funds through Goldman Sachs. What are you going to use the money for?
JOHN MASE: Interesting. We used about $250 million to pay down a lot of our existing secured debt, so we have a lot of unsecured debt on our books from this bond financing. And the balance we're using for two purposes, no one to rehab existing facilities that we have purchased. We bought a lot of real estate in the last two years. And we're using it to fix up those properties and prepare for new tenants.
And the rest is just for working capital for the business, but it's primarily growth capital. So we have a long pipeline of assets, we're looking all over the country, and we're continuing to do what we do.
ALEXIS CHRISTOFOROUS: Fascinating to see the strength and the growth you're seeing there in your industry. John Mase, CEO of Industrial Realty Group, thanks so much.