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The Portland Commercial Real Estate Market was hit from all sides in 2020. Yet, amidst all adversity, sits some of the greatest opportunities for the trained and informed eye.
Joe Kappler with Macadam Forbes is a local leader in the real estate industry and is going to give us an update on the state of the local market and help us to predict what we can expect in the months and years to come.
Show Notes
Justin Stoddart
Welcome back to The Think Bigger Real Estate Show, I am your host Stoddart, here to talk all about the Portland commercial real estate market. Eyeballs have been on our commercial market for some time because, in 2020, it seems like we got hit from all sides. Both the pandemic well as social unrest has caused there to be some question marks as to what are the risks? And what are the opportunities with commercial real estate I have with me today, an expert in that field who's going to share with us some great details that will be very helpful for you, and someone who you will want to know before I introduce him.
Welcome back to The Think Bigger Real Estate Show, I am your host Stoddart, here to talk all about the Portland commercial real estate market. Eyeballs have been on our commercial market for some time because, in 2020, it seems like we got hit from all sides. Both the pandemic well as social unrest has caused there to be some question marks as to what are the risks? And what are the opportunities with commercial real estate I have with me today, an expert in that field who's going to share with us some great details that will be very helpful for you, and someone who you will want to know before I introduce him.
Justin Stoddart
Let me remind you that inside of that Think Bigger Real Estate Group on Facebook, you're gonna have the opportunity to go deeper on this topic and others, I believe that the best way to learn is to be engaged in the learning. in that group, you get engaged in the learning you will have the opportunity, to grow yourself, which is my passion. So again, about today's guests, his name is Joe Kappler. He is the vice president of Macadam Forbes excited to have him here. He's become a good friend of mine, someone who I really respect admire, both in things business as well as in things personal. And we're gonna jump right in here. Joe, give us an update.
Let me remind you that inside of that Think Bigger Real Estate Group on Facebook, you're gonna have the opportunity to go deeper on this topic and others, I believe that the best way to learn is to be engaged in the learning. in that group, you get engaged in the learning you will have the opportunity, to grow yourself, which is my passion. So again, about today's guests, his name is Joe Kappler. He is the vice president of Macadam Forbes excited to have him here. He's become a good friend of mine, someone who I really respect admire, both in things business as well as in things personal. And we're gonna jump right in here. Joe, give us an update.
Justin Stoddart
In fact, let me do this. Because this show is all about thinking bigger. I know you're a family man, also a man of faith. Talk to me, Joe, what's your favorite part about being a dad?
In fact, let me do this. Because this show is all about thinking bigger. I know you're a family man, also a man of faith. Talk to me, Joe, what's your favorite part about being a dad?
Joe Kappler
A favorite part about paying dad he does have all evolved days actually today I got my oldest is now at a new school West Hills Christian, they had a deal in which you come in and talk about what you do. And it was neat to see you know, my kid at a school where he's you know, you said blocks in positions and goals in life, your kids to be successful and easy only at second grade but seeing him in school loving where he's at thriving.
A favorite part about paying dad he does have all evolved days actually today I got my oldest is now at a new school West Hills Christian, they had a deal in which you come in and talk about what you do. And it was neat to see you know, my kid at a school where he's you know, you said blocks in positions and goals in life, your kids to be successful and easy only at second grade but seeing him in school loving where he's at thriving.
Joe Kappler
You know, we got sports coming up, there's been no see them failed to be able to have the mindset that picks themselves back up in a COVID world that they have a good attitude, being stuck at home and just seeing the positive signs alive. So saying, watch our kids as they grow up right now from babies to little people right now it's fun to see them react to challenges or react to even just be trying to instill the humbleness and inside of things when they go really well.
You know, we got sports coming up, there's been no see them failed to be able to have the mindset that picks themselves back up in a COVID world that they have a good attitude, being stuck at home and just seeing the positive signs alive. So saying, watch our kids as they grow up right now from babies to little people right now it's fun to see them react to challenges or react to even just be trying to instill the humbleness and inside of things when they go really well.
Joe Kappler
Because obviously things cannot go Well, you've been through this pandemic, I'll probably be mixed reviews on this by took my kids downtown, walk the streets during Christmas time. And with my little girl, she's four older sons eight. And walking in seeing this is life on the other side if you will. And obviously, you know, it's the social unrest is one thing, but also just the homelessness and seeing that this is a stark difference to where we're out in the suburbs, we don't really see much of that and seeing them interact and reaching out their hand not being afraid to go talk to these people and hand out a blanket or some clothes. And I think for kids to see that. For our kids at early ages, see them thrive in those situations where it's uncomfortable, but they can become comfortable with making sure that there are It doesn't matter what the person looks like, smells like anything else. They're human, they're a child of God, and they deserve to be loved. So been through this challenging time to see them be excited about those sorts of opportunities.
Because obviously things cannot go Well, you've been through this pandemic, I'll probably be mixed reviews on this by took my kids downtown, walk the streets during Christmas time. And with my little girl, she's four older sons eight. And walking in seeing this is life on the other side if you will. And obviously, you know, it's the social unrest is one thing, but also just the homelessness and seeing that this is a stark difference to where we're out in the suburbs, we don't really see much of that and seeing them interact and reaching out their hand not being afraid to go talk to these people and hand out a blanket or some clothes. And I think for kids to see that. For our kids at early ages, see them thrive in those situations where it's uncomfortable, but they can become comfortable with making sure that there are It doesn't matter what the person looks like, smells like anything else. They're human, they're a child of God, and they deserve to be loved. So been through this challenging time to see them be excited about those sorts of opportunities.
Justin Stoddart
So I love that Joe. That's one of the reasons why I admire you again and the way in which you would still great values in those with whom you work as well as with those with whom you live and get the raises as children. So great job on you.
So I love that Joe. That's one of the reasons why I admire you again and the way in which you would still great values in those with whom you work as well as with those with whom you live and get the raises as children. So great job on you.
Justin Stoddart
Let's talk about let's get into the commercial real estate market. And that's why people are here. That was a little added. You're welcome to all the guests. I want to hear really quickly. Just kind of a state of the market. Right. Obviously, there, there have been a lot of changes, you know, the past 12 months, right? A lot of obviously, people are now working remotely. Maybe let's just start with this question of Is there any sort of statistics are let's just talk about the impact so far. What's happened to the maybe downtown market as a result of the pandemic? Maybe it's hard to separate between the pandemic and the other things that have been going on downtown. But what has been the result of everything that's happened in the past 12 months?
Let's talk about let's get into the commercial real estate market. And that's why people are here. That was a little added. You're welcome to all the guests. I want to hear really quickly. Just kind of a state of the market. Right. Obviously, there, there have been a lot of changes, you know, the past 12 months, right? A lot of obviously, people are now working remotely. Maybe let's just start with this question of Is there any sort of statistics are let's just talk about the impact so far. What's happened to the maybe downtown market as a result of the pandemic? Maybe it's hard to separate between the pandemic and the other things that have been going on downtown. But what has been the result of everything that's happened in the past 12 months?
Joe Kappler
Yeah, I mean, certainly a good question. A lot of people have seen it in the news. I mean, the Portland Business Journal does a pretty good job of staying on top of the commercial real estate market. And you saw there are some rumors about midsummer that there's gonna be about a million and a half square feet of either new inventory of tents, walking away from leases, or sublease spaces coming online. And we did see that happen. Some massive shifts from you know, it's been a mixed bag of for focusing just on the downtown core Obviously you have COVID people working from home, the social unrest, they have had the city's new tax policies and you kind of have a three-way punch there that now here we are in March of 2021. And we're seeing a push of people moving out of downtown, the suburbs have largely missed the run-up, you know, going back to 2010, we bottomed out in the commercial real estate world. And then we've been on a tear since then. And COVID kind of knocked downtown off of that pedestal because you saw office lease rates, you know, crews weigh, you know, they are upwards of 3836 35 to $36, a square foot full service in 2009. Right now, they're at $39 a square foot where you go downtown, and you've seen these Class C buildings undergo massive renovations lease rates downtown, over $40 a square foot. But what you're seeing now are companies realizing what can we do space-wise to have employees work remotely? You know, Google has been really the only major tech company saying I want you back in the office come September, but most of the others were kind of allowing folks to work remotely.
Yeah, I mean, certainly a good question. A lot of people have seen it in the news. I mean, the Portland Business Journal does a pretty good job of staying on top of the commercial real estate market. And you saw there are some rumors about midsummer that there's gonna be about a million and a half square feet of either new inventory of tents, walking away from leases, or sublease spaces coming online. And we did see that happen. Some massive shifts from you know, it's been a mixed bag of for focusing just on the downtown core Obviously you have COVID people working from home, the social unrest, they have had the city's new tax policies and you kind of have a three-way punch there that now here we are in March of 2021. And we're seeing a push of people moving out of downtown, the suburbs have largely missed the run-up, you know, going back to 2010, we bottomed out in the commercial real estate world. And then we've been on a tear since then. And COVID kind of knocked downtown off of that pedestal because you saw office lease rates, you know, crews weigh, you know, they are upwards of 3836 35 to $36, a square foot full service in 2009. Right now, they're at $39 a square foot where you go downtown, and you've seen these Class C buildings undergo massive renovations lease rates downtown, over $40 a square foot. But what you're seeing now are companies realizing what can we do space-wise to have employees work remotely? You know, Google has been really the only major tech company saying I want you back in the office come September, but most of the others were kind of allowing folks to work remotely.
Joe Kappler
What we're seeing for downtown, you know, vacancy rate wise in the general office market is over 15 to 17% vacant, you know, the Portland metro area. In some cases, it's showing 10.6 it's a mixed bag downtown 17.6 right now according to costar, which is kind of our main bread and butter we go to for stats. But you've had a lot of these small companies, the mom and pops of the Portland area, that one's kind of keeping the lights on that one to 5000 Square feets kind of your staple lease rate range, but the company's I one company that was down on macadam Avenue, we looked at doing a renewal they actually grew through this, we moved him over to Lincoln Center.
What we're seeing for downtown, you know, vacancy rate wise in the general office market is over 15 to 17% vacant, you know, the Portland metro area. In some cases, it's showing 10.6 it's a mixed bag downtown 17.6 right now according to costar, which is kind of our main bread and butter we go to for stats. But you've had a lot of these small companies, the mom and pops of the Portland area, that one's kind of keeping the lights on that one to 5000 Square feets kind of your staple lease rate range, but the company's I one company that was down on macadam Avenue, we looked at doing a renewal they actually grew through this, we moved him over to Lincoln Center.
Joe Kappler
And so that was a good deal for them went from seven to like 9000 square feet, getting out of the city of Portland, which wasn't primarily a big push for him and his company. But now with these professional service firms like CPAs, and attorneys looking at the increased taxes by doing business in the city of Portland, and they live in the southwest, there's this kind of migration out of their pockets and brokers.
And so that was a good deal for them went from seven to like 9000 square feet, getting out of the city of Portland, which wasn't primarily a big push for him and his company. But now with these professional service firms like CPAs, and attorneys looking at the increased taxes by doing business in the city of Portland, and they live in the southwest, there's this kind of migration out of their pockets and brokers.
Joe Kappler
We all look if you're an office broker, you kind of looked at crews way it's kind of your epitome of the nicest office space and what is going on there to kind of direct activity lease rates there at the top end at 35 to $39 a square foot full service through COVID. They got hit pretty hard, they crept up, I think they're about 20 just about 21% vacant right now. You drive these buildings right now you're probably telling me, Joe, why isn't it 50% because I see like six cars in there.
We all look if you're an office broker, you kind of looked at crews way it's kind of your epitome of the nicest office space and what is going on there to kind of direct activity lease rates there at the top end at 35 to $39 a square foot full service through COVID. They got hit pretty hard, they crept up, I think they're about 20 just about 21% vacant right now. You drive these buildings right now you're probably telling me, Joe, why isn't it 50% because I see like six cars in there.
Joe Kappler
But people are still paying on their leases that you know, it's tough to get employees back in the office right now. But they're seeing their biggest push Kruse Way of office interest now then going that this is the most since pre COVID right now. So it's a healthy, healthy barometer for the suburbs to be doing well, they're now just trying to go push office rents. I mean, I had a listing of 217 2005. Their rate was like $22 a square foot COVID hit right before then they're at $24 per square foot. So they've been pushing rents up now they're at $26.50.
But people are still paying on their leases that you know, it's tough to get employees back in the office right now. But they're seeing their biggest push Kruse Way of office interest now then going that this is the most since pre COVID right now. So it's a healthy, healthy barometer for the suburbs to be doing well, they're now just trying to go push office rents. I mean, I had a listing of 217 2005. Their rate was like $22 a square foot COVID hit right before then they're at $24 per square foot. So they've been pushing rents up now they're at $26.50.
Joe Kappler
And I had clients call me last week saying how our office rates going up through COVID. When people are working remotely, they're not going into the offices, and Shorenstein and other landlords not that I mean they're great landlords, great product, but they've through this they've been able to push rents.
And I had clients call me last week saying how our office rates going up through COVID. When people are working remotely, they're not going into the offices, and Shorenstein and other landlords not that I mean they're great landlords, great product, but they've through this they've been able to push rents.
Joe Kappler
And it's largely because you've had a little appreciation and plus, if you're going to come in as a tenant, you do landlord work and tenant work and if you're a tenant and you're moving out of downtown and moving across town, you don't want to go pay for your new offices, the 10 improvement side of things you want the landlord to go pay for that well, with a cost of construction through the roof plywood sheets used to be like eight bucks a sheet now it's like 25 bucks of the sheet I mean, just crazy increase in prices.
And it's largely because you've had a little appreciation and plus, if you're going to come in as a tenant, you do landlord work and tenant work and if you're a tenant and you're moving out of downtown and moving across town, you don't want to go pay for your new offices, the 10 improvement side of things you want the landlord to go pay for that well, with a cost of construction through the roof plywood sheets used to be like eight bucks a sheet now it's like 25 bucks of the sheet I mean, just crazy increase in prices.
Joe Kappler
You've said landlords are saying look, I can't pay what a normal carpet and paint was six or $7 a square foot, not eight to 10 half my allowance is just going towards carpet and paint. I gotta get this lease rate up higher to cover your additional wall movement electrical HVAC. So are you Am I saying that lease rates are artificially high to cover that cost and maybe in some circumstances, but for a new activity for deal volume downtown, net absorption is down big time by the tune of over 2 million square feet. The suburbs are clawing their way back. You know what are we see going forward
You've said landlords are saying look, I can't pay what a normal carpet and paint was six or $7 a square foot, not eight to 10 half my allowance is just going towards carpet and paint. I gotta get this lease rate up higher to cover your additional wall movement electrical HVAC. So are you Am I saying that lease rates are artificially high to cover that cost and maybe in some circumstances, but for a new activity for deal volume downtown, net absorption is down big time by the tune of over 2 million square feet. The suburbs are clawing their way back. You know what are we see going forward
Joe Kappler
Obviously, the vaccine is good news folks kind of re-entry back into the office. I expect downtown to be a long crawl out of this. Just up drive downtown and just see the damage. And you see the folks that are out there. It's gonna be A Tale of Two Worlds for those local companies who want to still be there.
Obviously, the vaccine is good news folks kind of re-entry back into the office. I expect downtown to be a long crawl out of this. Just up drive downtown and just see the damage. And you see the folks that are out there. It's gonna be A Tale of Two Worlds for those local companies who want to still be there.
Joe Kappler
And, you know, from a philosophical standpoint, but back when we came out of this recession, there's this push to be downtown employee recruitment. All those articles are saying these young employees want to be near the bars to go have happy hour and not leave work at three to get through traffic. Will those same millennials still want to go have a family have kids and have a house? Well, you're going to have that out in the suburbs. And so are we going to start seeing a resurgence in the suburbs? I think we are I started talking about 17 and 18. We can get great office lease rates compared to paying crazy high prices downtown cruise village, right on the corner of cruise lay and in Boone's ferry, and they got that Chef's Table coming.
And, you know, from a philosophical standpoint, but back when we came out of this recession, there's this push to be downtown employee recruitment. All those articles are saying these young employees want to be near the bars to go have happy hour and not leave work at three to get through traffic. Will those same millennials still want to go have a family have kids and have a house? Well, you're going to have that out in the suburbs. And so are we going to start seeing a resurgence in the suburbs? I think we are I started talking about 17 and 18. We can get great office lease rates compared to paying crazy high prices downtown cruise village, right on the corner of cruise lay and in Boone's ferry, and they got that Chef's Table coming.
Joe Kappler
So you're not just having your Applebee's restaurants out in the suburbs anymore. You're having real attention to great quality restaurants to attract people new apartment units are being built out in the suburbs right now to which for the longest time, all the units are being built in the downtown core area because you can get over a $3 square foot rents and now they're pushing those numbers for new stuff in Lake Oswego and other parts of Portland, right?
So you're not just having your Applebee's restaurants out in the suburbs anymore. You're having real attention to great quality restaurants to attract people new apartment units are being built out in the suburbs right now to which for the longest time, all the units are being built in the downtown core area because you can get over a $3 square foot rents and now they're pushing those numbers for new stuff in Lake Oswego and other parts of Portland, right?
Justin Stoddart
You know, it reminds me of Joe a little bit is it there's obviously been an exodus of people that have you know, left Portland, Portland was increasing at rapid rates for a period of time, on the residential side, down low during the pandemic is some people decided that you didn't you know, they didn't need to live in the city or they want to live somewhere else. And then all of a sudden, excuse me, our demand got crazy high and it's, I always compare Californians, right. Leaving California to come to Oregon, as maybe a reason why even in a pandemic, even like with what's happening in Oregon real estate residential is still absolutely hoppy. It almost seems like a similar comparison to what's happening even though, like you're saying in a pandemic, lease rates are going up in the suburbs, because people are leaving the city. Right. And there, they're looking for potential new lease space. So yes, you have some people leaving, you know, like commercial real estate, at least the square footage that they've had in the past. But there, there are enough people coming out of the city, that it feels that demand. And there's still a shortage of supply. Is that fair to say? Yeah,
You know, it reminds me of Joe a little bit is it there's obviously been an exodus of people that have you know, left Portland, Portland was increasing at rapid rates for a period of time, on the residential side, down low during the pandemic is some people decided that you didn't you know, they didn't need to live in the city or they want to live somewhere else. And then all of a sudden, excuse me, our demand got crazy high and it's, I always compare Californians, right. Leaving California to come to Oregon, as maybe a reason why even in a pandemic, even like with what's happening in Oregon real estate residential is still absolutely hoppy. It almost seems like a similar comparison to what's happening even though, like you're saying in a pandemic, lease rates are going up in the suburbs, because people are leaving the city. Right. And there, they're looking for potential new lease space. So yes, you have some people leaving, you know, like commercial real estate, at least the square footage that they've had in the past. But there, there are enough people coming out of the city, that it feels that demand. And there's still a shortage of supply. Is that fair to say? Yeah,
Joe Kappler
I mean, yeah, I mean, we'll see me right, we'll see how much of that supply that was downtown. The downtown was clipping, you know, five to 8% vacant at times, pre Koba, and all of a sudden, now it's jumped up two-fold. And so is that going to be a company just not taking on more square footage. I mean, there were some notes saying that you know, sublease. Vic sublease inventory nationally went from like 15%, or 30%, which doesn't seem like a huge Blip. But you know, those are your biggest deals that you can find. I mean, if you want your office landlord to take a haircut on his lease rate or her lease rate, it's going to be finding a sublease. But deals downtown, you're getting more softening of that.
I mean, yeah, I mean, we'll see me right, we'll see how much of that supply that was downtown. The downtown was clipping, you know, five to 8% vacant at times, pre Koba, and all of a sudden, now it's jumped up two-fold. And so is that going to be a company just not taking on more square footage. I mean, there were some notes saying that you know, sublease. Vic sublease inventory nationally went from like 15%, or 30%, which doesn't seem like a huge Blip. But you know, those are your biggest deals that you can find. I mean, if you want your office landlord to take a haircut on his lease rate or her lease rate, it's going to be finding a sublease. But deals downtown, you're getting more softening of that.
Joe Kappler
But I think it's still there are still companies growing through all this. I mean, people in you look at retail, these home improvement stores, and you're looking at, you know, real. Obviously, there are some that are out there, looking to go add square footage, construction companies, many industrial markets, that bright shining spot of the whole COVID world.
But I think it's still there are still companies growing through all this. I mean, people in you look at retail, these home improvement stores, and you're looking at, you know, real. Obviously, there are some that are out there, looking to go add square footage, construction companies, many industrial markets, that bright shining spot of the whole COVID world.
Justin Stoddart
Let's talk about that. What do you see in the market?
Let's talk about that. What do you see in the market?
Unknown Speaker
Yeah, I mean, right now, I mean, the biggest, in some degrees, it kind of goes hot and cold out there on that kind of east side of town out there along airport way. You've had these brand new 100 300,000 square foot industrial buildings being built in, in some cases, they're being sold vacant to these investment companies. They're just looking at a push, they got cash capital they've raised, they got to go and deploy. And so they're buying these warehouse buildings, assuming they're leased up, I mean, a cap rate basically, for lack of a better word, your return on your investment, and they're usually a goal upon borrowing costs and lease terms and quality of these tenants. And they're being sold vacant, assuming a fully leased building it like a four and a half percent cap rate. And these things are trading for 135 $150 a square foot and in some cases, I sold a 30,000-foot office building for $135 a square foot two weeks ago.
Yeah, I mean, right now, I mean, the biggest, in some degrees, it kind of goes hot and cold out there on that kind of east side of town out there along airport way. You've had these brand new 100 300,000 square foot industrial buildings being built in, in some cases, they're being sold vacant to these investment companies. They're just looking at a push, they got cash capital they've raised, they got to go and deploy. And so they're buying these warehouse buildings, assuming they're leased up, I mean, a cap rate basically, for lack of a better word, your return on your investment, and they're usually a goal upon borrowing costs and lease terms and quality of these tenants. And they're being sold vacant, assuming a fully leased building it like a four and a half percent cap rate. And these things are trading for 135 $150 a square foot and in some cases, I sold a 30,000-foot office building for $135 a square foot two weeks ago.
Joe Kappler
So you've seen prices for industrial properties. Increasing there are comments that as we look north to Seattle, to our big brother and sister in San Francisco to our south and north of Seattle, the south of San Francisco, and their industrial markets and their land prices are staggering. Almost More than what our office pricing is there, there are thoughts that there is still a lot of room to go with industrial rates were industrial lease rates for some industrial property in Tualatin shell rates, you know, going back to 2008 2009 were like 35 cents on the shell, they're upward they're trying to push new product at 70 cents a square foot office surcharge used to be whatever 70 cents a square foot, they're getting $1 square foot on that you're 5% vacant in parts of town, you're 2% vacant. So it's, it's this clamors, not a gold rush mentality. But people feel pretty confident to go build these 30 to 150 or 200,000 square foot blocks of space. I mean, there's a statistic that Amazon last year, new leases signed 100 million square feet of new leases across the country last year because of this demand and I think one broker quoted some statistic very 1% of brick and mortar sales that shift from brick and mortar to online you need basically 37 million square feet of industrial space to accommodate that shift from you know patio packaging from wholesaling all that and so that so you die.
So you've seen prices for industrial properties. Increasing there are comments that as we look north to Seattle, to our big brother and sister in San Francisco to our south and north of Seattle, the south of San Francisco, and their industrial markets and their land prices are staggering. Almost More than what our office pricing is there, there are thoughts that there is still a lot of room to go with industrial rates were industrial lease rates for some industrial property in Tualatin shell rates, you know, going back to 2008 2009 were like 35 cents on the shell, they're upward they're trying to push new product at 70 cents a square foot office surcharge used to be whatever 70 cents a square foot, they're getting $1 square foot on that you're 5% vacant in parts of town, you're 2% vacant. So it's, it's this clamors, not a gold rush mentality. But people feel pretty confident to go build these 30 to 150 or 200,000 square foot blocks of space. I mean, there's a statistic that Amazon last year, new leases signed 100 million square feet of new leases across the country last year because of this demand and I think one broker quoted some statistic very 1% of brick and mortar sales that shift from brick and mortar to online you need basically 37 million square feet of industrial space to accommodate that shift from you know patio packaging from wholesaling all that and so that so you die.
Joe Kappler
So people ask commercial real estate brokers, how's your world or general read or general residential, you're all busy but for commercial, if you're doing retail industrial office, if you're doing dentistry right now, this is you're having a garden office is 1011 years in the business had his best year ever last year at COVID world where most were expecting commercial to be kicked in the teeth. So it's, there's a fervor for just general companies, end-users, you know, owner-user sales are off the charts. And that's the one thing even for the office world, as much as people their businesses are doing well, these PPP loans.
So people ask commercial real estate brokers, how's your world or general read or general residential, you're all busy but for commercial, if you're doing retail industrial office, if you're doing dentistry right now, this is you're having a garden office is 1011 years in the business had his best year ever last year at COVID world where most were expecting commercial to be kicked in the teeth. So it's, there's a fervor for just general companies, end-users, you know, owner-user sales are off the charts. And that's the one thing even for the office world, as much as people their businesses are doing well, these PPP loans.
Joe Kappler
Part of it is helping the owner user what gets in your world where someone wants to go buy a building, I go get an escrow company, PPP SBA, they waive their guarantee fees on these SBA loans for 5047. a deal right now and a deal I did last year, a couple of them that the SBA will pay your first six months of your mortgage payment. And so you've had record low-interest rates and some commercial deals. Yeah, I've gotten financing as low as like high twos, which is just almost as cheap as a residential loan. And so pricing police, small little owner-user buildings are holding if not going up in value through this whole thing.
Part of it is helping the owner user what gets in your world where someone wants to go buy a building, I go get an escrow company, PPP SBA, they waive their guarantee fees on these SBA loans for 5047. a deal right now and a deal I did last year, a couple of them that the SBA will pay your first six months of your mortgage payment. And so you've had record low-interest rates and some commercial deals. Yeah, I've gotten financing as low as like high twos, which is just almost as cheap as a residential loan. And so pricing police, small little owner-user buildings are holding if not going up in value through this whole thing.
Joe Kappler
So again, the overall sentiment is COVID happens, the news of pushing people are working from home, commercial, Real Estate's dead in the office world. And yet, unless you're downtown, the suburbs have had increased lease rates sustained if not appreciated office building prices. So it's, in some cases, we're selling office buildings for numbers we haven't seen ever before. So it's just a head-scratcher for most folks who just see who's leasing office space, but it's, um, tell my wife, I'm never home for me, I'm here working from home remotely now. But at times, I can barely get off the computer just because of what's going on out there. People are still doing deals. It just really depends on what part of the market you're focused on right now.
So again, the overall sentiment is COVID happens, the news of pushing people are working from home, commercial, Real Estate's dead in the office world. And yet, unless you're downtown, the suburbs have had increased lease rates sustained if not appreciated office building prices. So it's, in some cases, we're selling office buildings for numbers we haven't seen ever before. So it's just a head-scratcher for most folks who just see who's leasing office space, but it's, um, tell my wife, I'm never home for me, I'm here working from home remotely now. But at times, I can barely get off the computer just because of what's going on out there. People are still doing deals. It just really depends on what part of the market you're focused on right now.
Justin Stoddart
Fascinating to hear that I know that a lot of people had been kinda like, a little nervous about their commercial real estate broker friends, for some that were highly niched, into, you know, an area that, you know, it's been heavily impacted. But it sounds like the demand has been high enough in other parts of commercial that I'm sure kind of a savvy broker has learned how to adapt and step up into those new in-demand areas where their previous niche may have, you know, may have struggled.
Fascinating to hear that I know that a lot of people had been kinda like, a little nervous about their commercial real estate broker friends, for some that were highly niched, into, you know, an area that, you know, it's been heavily impacted. But it sounds like the demand has been high enough in other parts of commercial that I'm sure kind of a savvy broker has learned how to adapt and step up into those new in-demand areas where their previous niche may have, you know, may have struggled.
Unknown Speaker
Having again, a shift could suffer, some brokers may be talking to some the commercial world is probably your top two or 300 agents, and we all seem to know each other, which is good. But for those who focused on downtown and had a huge listing Rolodex, we've had to kind of start to change up the chase tenant requirements. Because as we came into the recession, it was all about blending extends. So if you are an official company and a broker calls you up, let me help you with your office lease, you could get paid just to help renew their lease, and you don't just have to sell a building or find them a new spot. And there's this sense, there's this sentiment now that hey, we gotta go control the tenants right now because there's plenty of vacant office space out there. So let's just control the tenant side of things.
Having again, a shift could suffer, some brokers may be talking to some the commercial world is probably your top two or 300 agents, and we all seem to know each other, which is good. But for those who focused on downtown and had a huge listing Rolodex, we've had to kind of start to change up the chase tenant requirements. Because as we came into the recession, it was all about blending extends. So if you are an official company and a broker calls you up, let me help you with your office lease, you could get paid just to help renew their lease, and you don't just have to sell a building or find them a new spot. And there's this sense, there's this sentiment now that hey, we gotta go control the tenants right now because there's plenty of vacant office space out there. So let's just control the tenant side of things.
Unknown Speaker
And so for tenants, are they going to finally have their day in the sun because from about 2015 16 till early parts of 2020 it's been a landlord's market driving rents up driving concessions somewhat down and so now you know your best time to have made a real estate deal was right when the COVID world hit from March till about June the suburbs. Then after that mean, we were negotiating and our new office, which is why I'm working from home now. The new office we get to go in there, first of April and you as a real estate broker, your broker and your broker and we Is this the right time to be signing a lease and we all thought, look, I wish our lease was up instead of January of 2021.
And so for tenants, are they going to finally have their day in the sun because from about 2015 16 till early parts of 2020 it's been a landlord's market driving rents up driving concessions somewhat down and so now you know your best time to have made a real estate deal was right when the COVID world hit from March till about June the suburbs. Then after that mean, we were negotiating and our new office, which is why I'm working from home now. The new office we get to go in there, first of April and you as a real estate broker, your broker and your broker and we Is this the right time to be signing a lease and we all thought, look, I wish our lease was up instead of January of 2021.
Unknown Speaker
We wish it was basically January of 22 to kind of have time season past us and into the right for for now it's like that was actually a good time because even our building we moved into bumped rates while we were negotiating. Thankfully, they honored our current deal. But yeah, it's a, it's a wild world where there's still enough most of the suburb office deals are kind of one to 5000 square feet, we're in the industrial world, it seemed to go in times where all sudden, they're just there are not enough big blocks of space, you got these big requirements coming through where you can go place 100,000 square feet, so you haven't used lamp some landlords are figuring out I've got to go build big blocks and wait for them to come you and in the listings in quality and where they were slow through COVID. In the last month, month, and a half, they've had a resurgence of two or three deals to literally fill up a 200,000 square foot complex. So it kind of comes in waves at times or at times your brokers felt towards the end of last year was a flurry of activity, but through the summertime, it slowed down. But in the commercial world, we don't have seasons like residential where all of a sudden, springtime gets home out there.
We wish it was basically January of 22 to kind of have time season past us and into the right for for now it's like that was actually a good time because even our building we moved into bumped rates while we were negotiating. Thankfully, they honored our current deal. But yeah, it's a, it's a wild world where there's still enough most of the suburb office deals are kind of one to 5000 square feet, we're in the industrial world, it seemed to go in times where all sudden, they're just there are not enough big blocks of space, you got these big requirements coming through where you can go place 100,000 square feet, so you haven't used lamp some landlords are figuring out I've got to go build big blocks and wait for them to come you and in the listings in quality and where they were slow through COVID. In the last month, month, and a half, they've had a resurgence of two or three deals to literally fill up a 200,000 square foot complex. So it kind of comes in waves at times or at times your brokers felt towards the end of last year was a flurry of activity, but through the summertime, it slowed down. But in the commercial world, we don't have seasons like residential where all of a sudden, springtime gets home out there.
Joe Kappler
Commercially, if you signed a lease five years ago, it comes up now you got to be planning six to 12 months in advance. And so you might have the summertime if an executive or two are out vacationing, it might slow down but it's all timing on their leases or their needs versus you know, hey, it's let's go move Johnny or bill before the school year starts up to get out that's gonna change with COVID with your world, but that certainly for ours, it's not really a barometer.
Commercially, if you signed a lease five years ago, it comes up now you got to be planning six to 12 months in advance. And so you might have the summertime if an executive or two are out vacationing, it might slow down but it's all timing on their leases or their needs versus you know, hey, it's let's go move Johnny or bill before the school year starts up to get out that's gonna change with COVID with your world, but that certainly for ours, it's not really a barometer.
Justin Stoddart
Great perspective, Joe, probably one that a lot of us didn't, didn't recognize. I'll invite anybody that's listening. If you have questions for Joe, feel free to put them in the comments, we'll be sure to put his contact information down as well. So that should you have comments after the fact you can reach out to him, I would like to ask you this show is that? What do you see as being the missed opportunity between residential commercial brokers working together potentially as referral partners? Being kind of eyes open for one another? Are there certain opportunities that you would say that a real estate agent that a residential agent should be looking for? For example, I'll throw this out here, you helped me validate this, that every time a real estate agent is meeting with a client, they asked, Where do you work? Where's your office at? And there grows an opportunity to really identify if there's also a commercial need at some point in their future, right? Could that be a valuable referral to make outward to you?
Great perspective, Joe, probably one that a lot of us didn't, didn't recognize. I'll invite anybody that's listening. If you have questions for Joe, feel free to put them in the comments, we'll be sure to put his contact information down as well. So that should you have comments after the fact you can reach out to him, I would like to ask you this show is that? What do you see as being the missed opportunity between residential commercial brokers working together potentially as referral partners? Being kind of eyes open for one another? Are there certain opportunities that you would say that a real estate agent that a residential agent should be looking for? For example, I'll throw this out here, you helped me validate this, that every time a real estate agent is meeting with a client, they asked, Where do you work? Where's your office at? And there grows an opportunity to really identify if there's also a commercial need at some point in their future, right? Could that be a valuable referral to make outward to you?
Justin Stoddart
Should a real estate agent start to gather that kind of data that that type of insights, to be able to serve them across more than just residential by teaming them up with someone like yourself? For example, do you see that as being a valid opportunity? Or is there something else that real estate agents should be looking for, in order to really add value to a commercial broker and also be open to receive value in return?
Should a real estate agent start to gather that kind of data that that type of insights, to be able to serve them across more than just residential by teaming them up with someone like yourself? For example, do you see that as being a valid opportunity? Or is there something else that real estate agents should be looking for, in order to really add value to a commercial broker and also be open to receive value in return?
Unknown Speaker
Yeah, I mean, certainly me I've over the years I've partner with a handful of residential real estate agents, I just as much as I'd never go list a residential house, it just completely different worlds. And so I've always been paying referral fees, I think, think about it from like a lead group thing, where we're the ones everyone wants to talk to because before a company goes and buys furniture or goes and looks to get office equipment or phones they needed to go were reading or move to Wi-Fi six or 12 months in advance. And so for brokered, residential brokers ever talk to their clients, and they may as early get in there and say, Look, I have someone in the case through COVID, use one Bend nearby broker I know who can kind of speak to you what they're seeing in the marketplace, because a lot of it for us, I always see us we're not really salespeople, mean salespeople where I was in college, I'm trying to go sell bill in Iowa who owns a true value to go buy a truckload of laminate flooring, you don't have an ad, but you need it.
Yeah, I mean, certainly me I've over the years I've partner with a handful of residential real estate agents, I just as much as I'd never go list a residential house, it just completely different worlds. And so I've always been paying referral fees, I think, think about it from like a lead group thing, where we're the ones everyone wants to talk to because before a company goes and buys furniture or goes and looks to get office equipment or phones they needed to go were reading or move to Wi-Fi six or 12 months in advance. And so for brokered, residential brokers ever talk to their clients, and they may as early get in there and say, Look, I have someone in the case through COVID, use one Bend nearby broker I know who can kind of speak to you what they're seeing in the marketplace, because a lot of it for us, I always see us we're not really salespeople, mean salespeople where I was in college, I'm trying to go sell bill in Iowa who owns a true value to go buy a truckload of laminate flooring, you don't have an ad, but you need it.
Unknown Speaker
I think for brokers, we're more advisors. And so we're trying to, you know, knowledge is power in this whole world. And so I think for us to come along with no, no obligation is to use this But hey, go talk to Joe about the office world if you're in or industrial and we do a little bit of retail but then the earlier we can get in the door to talk the better. I also think for real estate agents, we've had a couple that we've seen lists and properties for sale and grossly underpriced them in a way where the client mean in the residential world there's some you know way to price it low on a Thursday, have all your showings and you get like 50 offers or something and then the price eventually kind of comes up to market well.
I think for brokers, we're more advisors. And so we're trying to, you know, knowledge is power in this whole world. And so I think for us to come along with no, no obligation is to use this But hey, go talk to Joe about the office world if you're in or industrial and we do a little bit of retail but then the earlier we can get in the door to talk the better. I also think for real estate agents, we've had a couple that we've seen lists and properties for sale and grossly underpriced them in a way where the client mean in the residential world there's some you know way to price it low on a Thursday, have all your showings and you get like 50 offers or something and then the price eventually kind of comes up to market well.
Unknown Speaker
The commercial world may not be as translucent with that because I almost personally had a property under contract where there was a residential broker credit tied up and I had and or had it listed I was able to go get it tied up for well below market. But in the end, it didn't work out for other reasons. But there's a point of saying, I gotta go call someone who knows his world before I go price it because the comps, it's tough to get comps our information is different than hopping on Zillow and seeing what your neighbor sold his house for our information is not as readily available to people who don't have access to the websites we do. So I'm always a willing person to go talk with somebody if they want to go bounce ideas off of me, and with no obligation to use me if a broker wants to go and list it themselves and make a go of it.
The commercial world may not be as translucent with that because I almost personally had a property under contract where there was a residential broker credit tied up and I had and or had it listed I was able to go get it tied up for well below market. But in the end, it didn't work out for other reasons. But there's a point of saying, I gotta go call someone who knows his world before I go price it because the comps, it's tough to get comps our information is different than hopping on Zillow and seeing what your neighbor sold his house for our information is not as readily available to people who don't have access to the websites we do. So I'm always a willing person to go talk with somebody if they want to go bounce ideas off of me, and with no obligation to use me if a broker wants to go and list it themselves and make a go of it.
Unknown Speaker
But even with a real estate agent who has a client who wants to go, maybe their dentist wants to go buy a building, they want to go help them through the process, you know, we end up doing more work than expected through that. And I think if it's as long as a broker on the other side is willing to kind of say, like, Help Help me through this process. Help me know what I don't know, there's a lot to learn from them. The next time it goes around, I think some kind of get bullheaded, and they run their client into a wall and it doesn't end up working out because they got wrong counsel, because in our world you go sell a building residential, you're not gonna have your attorney look over anything you're going to have an environmental consultant come through, they're not going to have a contract or per sale a time or, or a surveyor. So we used to have so many more cooks in the kitchen that kind of clouded the vision of, or we all move in, or we all roll in the same way. And I think aging, that process is something that really separates an excellent broker from one who just tries to dabble in as many fields as possible because they just gotta get every deal done. And I think when you run it an inch, an inch deep, and a mile wide, it can run you into problems sometimes.
But even with a real estate agent who has a client who wants to go, maybe their dentist wants to go buy a building, they want to go help them through the process, you know, we end up doing more work than expected through that. And I think if it's as long as a broker on the other side is willing to kind of say, like, Help Help me through this process. Help me know what I don't know, there's a lot to learn from them. The next time it goes around, I think some kind of get bullheaded, and they run their client into a wall and it doesn't end up working out because they got wrong counsel, because in our world you go sell a building residential, you're not gonna have your attorney look over anything you're going to have an environmental consultant come through, they're not going to have a contract or per sale a time or, or a surveyor. So we used to have so many more cooks in the kitchen that kind of clouded the vision of, or we all move in, or we all roll in the same way. And I think aging, that process is something that really separates an excellent broker from one who just tries to dabble in as many fields as possible because they just gotta get every deal done. And I think when you run it an inch, an inch deep, and a mile wide, it can run you into problems sometimes.
Justin Stoddart
That's great, great insight, I think it's one of the things I talked about, in my book here, the upstream model is the power of bringing in other professionals to increase your own value proposition, no business opportunities that come as a result of that, I appreciate you sharing what you said because it really lends itself for people to realize that, that you know, there might be a great condition on the other side of that. But that doesn't mean that that's the best thing to do for your clients or for that matter, right? That what can end up coming around is you elevate your value proposition by having other experts come in, which will likely produce more long-term value than you probably expect. So love that.
That's great, great insight, I think it's one of the things I talked about, in my book here, the upstream model is the power of bringing in other professionals to increase your own value proposition, no business opportunities that come as a result of that, I appreciate you sharing what you said because it really lends itself for people to realize that, that you know, there might be a great condition on the other side of that. But that doesn't mean that that's the best thing to do for your clients or for that matter, right? That what can end up coming around is you elevate your value proposition by having other experts come in, which will likely produce more long-term value than you probably expect. So love that.
Justin Stoddart
Joe, the final question here, as we're coming to the end of our show here together is that you're a big thinker, you've done some great things have created a great reputation for yourself in the firm that you help lead. What do you what is your capital? need to be a big thinker to continue to expand your possibilities? What does that look like for you?
Joe, the final question here, as we're coming to the end of our show here together is that you're a big thinker, you've done some great things have created a great reputation for yourself in the firm that you help lead. What do you what is your capital? need to be a big thinker to continue to expand your possibilities? What does that look like for you?
Unknown Speaker
Well, good bear and different I always envision myself on this hamster wheel. And if you ever let off the throttle, it's just gonna throw you for a ride. And so you know that that typical, consistent pursuit to work as hard as you can into the Lord. And I think for me, it's it is an aspect of why I don't know things, being able to delegate responsibilities off to certain listings, or certain business I just know I'm not gonna do great. And I think what you can focus on in creating a niche, and just stay on top of that, that relentless pursuit to just consistently call back stay in touch with clients, I think it's, you know, as long as you're providing value and communicating to clients and being diligent, I mean, that's, that's 8% for any business, and I marvel at times in our world, how many times I get calls from folks who just say brokers aren't calling me back and I just want to go work certain hours are what it is, I probably am unhealthy a lot of regards to what I need it probably check on that.
Well, good bear and different I always envision myself on this hamster wheel. And if you ever let off the throttle, it's just gonna throw you for a ride. And so you know that that typical, consistent pursuit to work as hard as you can into the Lord. And I think for me, it's it is an aspect of why I don't know things, being able to delegate responsibilities off to certain listings, or certain business I just know I'm not gonna do great. And I think what you can focus on in creating a niche, and just stay on top of that, that relentless pursuit to just consistently call back stay in touch with clients, I think it's, you know, as long as you're providing value and communicating to clients and being diligent, I mean, that's, that's 8% for any business, and I marvel at times in our world, how many times I get calls from folks who just say brokers aren't calling me back and I just want to go work certain hours are what it is, I probably am unhealthy a lot of regards to what I need it probably check on that.
Unknown Speaker
But I just think it's what people define success differently. And obviously, as you said before, as long as my clients being serviced and your reputation as far worth more than a commission you can have I think if you can build a reputation around that and being diligent that's always been my focus and goal and sorting through COVID sich changed up a lot of ways that how we market properties and how we're gonna continue to change and adapt because it's been fascinating to see even clients who have you know, furniture companies, office furniture just getting whacked and all of a sudden they're adopting to now or adapting to go change and selling face shield and screens and all that and there and they're staying afloat. It's like I don't have I don't sell widgets. I don't sell those types of things. I sell a service I sell myself and so how does that change in a world where people are now at home? And how does it change where people are maybe struggling in their business and are those are doing well and so it's like always being there to help him out. And even in my case, I've had a client that we don't really know each other that well but through COVID we've been able to really become really good friends through all this and you see even seeing him having some neat times with him is worth all the commissions in the world. So I just think being a friend and not having always get to the last buck in a way on certain deals as, as I've kind of matured in my whole life is realizing it's your reputation, how you treat other people and just being relative. Listen those things and the money will come.
But I just think it's what people define success differently. And obviously, as you said before, as long as my clients being serviced and your reputation as far worth more than a commission you can have I think if you can build a reputation around that and being diligent that's always been my focus and goal and sorting through COVID sich changed up a lot of ways that how we market properties and how we're gonna continue to change and adapt because it's been fascinating to see even clients who have you know, furniture companies, office furniture just getting whacked and all of a sudden they're adopting to now or adapting to go change and selling face shield and screens and all that and there and they're staying afloat. It's like I don't have I don't sell widgets. I don't sell those types of things. I sell a service I sell myself and so how does that change in a world where people are now at home? And how does it change where people are maybe struggling in their business and are those are doing well and so it's like always being there to help him out. And even in my case, I've had a client that we don't really know each other that well but through COVID we've been able to really become really good friends through all this and you see even seeing him having some neat times with him is worth all the commissions in the world. So I just think being a friend and not having always get to the last buck in a way on certain deals as, as I've kind of matured in my whole life is realizing it's your reputation, how you treat other people and just being relative. Listen those things and the money will come.
Justin Stoddart
Love it--Joe great insight for an industry that has it has it has a tendency from some players to be short-sighted, very transactional I love your take on long reputations long relationships that are based on adding value to people--fantastic stuff. I appreciate also your expertise to the Portland real estate market office of the Portland real estate market helping us to understand what's going on there and see that there's a lot more opportunity than maybe some thoughts that's been very insightful and what's the best way to for people to get in contact with you should they have questions?
Love it--Joe great insight for an industry that has it has it has a tendency from some players to be short-sighted, very transactional I love your take on long reputations long relationships that are based on adding value to people--fantastic stuff. I appreciate also your expertise to the Portland real estate market office of the Portland real estate market helping us to understand what's going on there and see that there's a lot more opportunity than maybe some thoughts that's been very insightful and what's the best way to for people to get in contact with you should they have questions?
Joe Kappler
Yeah, certainly in the comments but this is probably my cell phone number or email address which you can provide to people. I always try and protect some of the hours but I'm very consistent with getting back to people that day. You know cell phone 503-708-9063 or emails Joek@macadamforbes.com. And any questions no questions a dumb question even just you got a business or you're a residential broker and you got someone looking around and here's what they're looking at what your two cents on that. I mean, that's the beauty of a lease for the commercial world is I have properties that will be sold. If we get a talk to the appraisers, they call us up weekly and being able to kind of have that added value of communicating Hey, this property seems low or seems high or what am I missing here? Joe? There's a lot of that just freedom of information that happens there for people that we can be a resource for.
Yeah, certainly in the comments but this is probably my cell phone number or email address which you can provide to people. I always try and protect some of the hours but I'm very consistent with getting back to people that day. You know cell phone 503-708-9063 or emails Joek@macadamforbes.com. And any questions no questions a dumb question even just you got a business or you're a residential broker and you got someone looking around and here's what they're looking at what your two cents on that. I mean, that's the beauty of a lease for the commercial world is I have properties that will be sold. If we get a talk to the appraisers, they call us up weekly and being able to kind of have that added value of communicating Hey, this property seems low or seems high or what am I missing here? Joe? There's a lot of that just freedom of information that happens there for people that we can be a resource for.
Justin Stoddart
Okay. All right, my friend. Thank you again for your time and to everybody listening here today. My final request. Are these three simple words. You know what they are Go Think Bigger. Joe, thanks for helping us do that today.
Okay. All right, my friend. Thank you again for your time and to everybody listening here today. My final request. Are these three simple words. You know what they are Go Think Bigger. Joe, thanks for helping us do that today.
Joe Kappler
Thanks, Justin.
Thanks, Justin.
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Justin Stoddart
What is Think Bigger Real Estate?
The road to success for real estate agents is well-marked. The road to significance is not. Here, we help you to Think Bigger than just your business. We inspire you to seek success AND significance, income AND impact. We do that by interviewing the biggest thinkers and highest achievers in the real estate industry, extracting the secrets to having it all.