The Future of Industrial Development With Jay Tanjuan, Real Finds Podcast #33 Transcript
Gordon Lamphere: Thanks for joining us on the Real Finds Podcast, the podcast series where we chat with key voices shaping the real estate industry and, as a result, our world. On today’s podcast, we speak with Jay Tanjuan. Jay is a naval veteran, a successful developer, and an industrial real estate expert. We talk logistics, the Port of Los Angeles, and gain deep insight not only into what’s occurring in the real estate industry but into the future of industrial real estate. If you’re a developer, investor, broker, or working in public policy related to urbanization and industrial real estate, this podcast is well worth a listen. Jay, thanks for hopping on the podcast today.
Jay Tanjuan: Thank you, Gordon. I really appreciate you having me.
Gordon Lamphere: Tell us a little bit about yourself.
Jay Tanjuan: I’m originally from San Diego, born and raised, and went to the Naval Academy for college, where I ran track. I spent six years in the Navy as a supply officer, which means I was doing logistics on a ship. I did that for three years with a couple of deployments to the Persian Gulf, then some shore duty, and finished my Navy career in 2007. Then I went to business school at UC Irvine. I felt I wanted to go into commercial real estate, so that was my focus and where I did my internships, and I ended up loving it. I graduated in 2009, and if you recall, the economic environment then wasn’t the best, probably not too dissimilar from now, but I think much worse for job prospects. Through networking and meeting a lot of people while in school, I found a solid opportunity doing office tenant rep brokerage with JLL. I don’t think I’d have gone that route if the environment had been different, but I’m grateful I did. I’d encourage students looking to jump into commercial real estate to consider brokerage. It’s a fantastic place to start, even though it’s not the typical post-MBA path. I did well and planned on that being my career, because development at the time had nothing going on. Then in 2011, I had the opportunity to join Panattoni Development. I turned it down at first, because in year two of brokerage you start to see the light at the end of the tunnel and the fruits of all the cold calling and door knocking. But after more research and consulting with mentors, I decided it was an opportunity I didn’t want to pass up, and I could always go back to brokerage. I went all in. In 2011 there wasn’t a lot going on in industrial development, but it was showing signs of life, and looking back, that was pretty much the bottom of the market. As we all know, it went straight up from there.
Why Developers Waited in 2009
Gordon Lamphere: I didn’t get fully into the business until the mid-2010s, and looking back, although the market was terrible in 2009, interest rates were relatively low, the price of money was low, and there was a lot of potential development opportunity. Was there a reason developers were waiting, other than fear?
Jay Tanjuan: Part of that is valid. There were a lot of layoffs in 2008 and 2009. Our industry and most industries got hit hard, and with that fresh in your mind, it’s hard to say, let’s go all in and go vertical on a project.
Gordon Lamphere: Embrace your inner Warren Buffett.
Jay Tanjuan: That was definitely part of it. And consumer demand was still muddling along, which is why rates had to go so low to spur the economy and encourage business investment and consumer spending. Then, with e-commerce, nobody really predicted how massive an impact it would have on industrial. That turned out to be the key driver that pushed the whole thing into the stratosphere.
E-Commerce and the Ports
Gordon Lamphere: Southern California has benefited enormously from the e-commerce surge and business from the Far East. What have you seen over the last ten years, and where is it going? With both a brokerage and a development background, you’re well situated to speak to the Southern California landscape.
Jay Tanjuan: E-commerce has been a great driver for our business. Pre-pandemic, e-commerce market share was about fifteen percent, and post-pandemic it got into the low twenties. CBRE projects it will get into the thirties in the next ten years, so there’s still a lot of growth yet to be realized, and that’s going to be a major driver here. But the biggest thing is the ports of LA and Long Beach, the largest ports by volume in the US by far. There was some container traffic lost to the East Coast during the labor agreement dispute and during the pandemic supply chain crisis, when you saw a hundred ships lined up off the coast. There was a shift, but we feel it’s coming back now that the agreement has been ratified and there’s certainty for the next six years on labor. Forty percent of the goods coming into the US come through those two ports, and once goods come in, they have to be stored somewhere, and that’s Southern California warehouses. Southern California industrial doesn’t just serve the local population, though the region is huge at twenty-four million people. It’s a jump-off point for the rest of the country.
Population is another big driver. You see the headlines that people are leaving California in droves for Texas and Florida, and to some extent that’s true. But at the end of the day there are still twenty-four million people. People want to live here for the lifestyle, and there are drawbacks like anywhere. I grew up here, lived in other parts of the country, and I’m glad to be back raising my family here. If you asked people where they’d live if they could live anywhere, a lot would say Southern California. So we have that going for us.
The industrial market right now is in a very challenging spot. The Fed’s rate program to combat inflation since March 2022 has put a damper on business investment and consumer spending, which directly affects our business, and construction financing for a development project costs three times what it did two years ago. It’s a strange picture: GDP has been okay, the labor market is hot with unemployment at 3.8%, historic lows, but commercial real estate and the banking and lending environment are very challenged. Those industries are taking much of the negative effect of the rate hikes.
Gordon Lamphere: You mentioned the port labor disputes. Are those over, and can we predict the next four to six years will be hunky-dory at the Southern California ports? Or is that still a concern for people in e-commerce, industrial, and warehousing?
Jay Tanjuan: The port agreement got ratified at the end of August, and it takes us to July 2028, so we have certainty and labor peace through then. The East Coast has its own labor agreement to work through, which I believe expires in September 2024, so they’re actively negotiating now, and as you saw on the West Coast, it doesn’t always go smoothly. The West Coast had a year of uncertainty with an expired contract while they operated and negotiated at the same time. Another big thing affecting the East Coast ports, which I predict will bring more container traffic back west, is the Panama Canal. There’s a severe drought with water restrictions likely for the next ten months or longer. The bigger ships that would typically pass through can’t, so one shipment becomes three, and that costs time and money. If you’re a supply chain professional, you weigh that against the easier option of diverting traffic to the West Coast ports, especially LA and Long Beach.
Port Logistics, Digitization, and Electric Trucks
Gordon Lamphere: The labor situation is resolved, but all of us in the Midwest and East Coast kept seeing news about port logistics issues moving containers from ships to trucks to trains. I worked at the Federal Maritime Commission during law school. How has that process gone in terms of digitization, AI, and automation? Has the port wrapped its arms around volume, or are we still working through the quirks of rapid growth?
Jay Tanjuan: It’s a combination. Consumer demand has tapered off from the supply chain crisis, when everyone was at home with money flooding into the economy and nowhere to go, buying like crazy online. That was a very unique situation the system wasn’t prepared for. With the port agreement in place, everybody’s working full speed ahead, so the backlog issues you read about are, at least for the moment, a thing of the past. But a big thing we’re facing at the ports is the push for electric vehicles. There’s a law being enforced that by the end of the year all diesel trucks going into the port have to be registered in a system called TRUCRS, and the eventual plan is to ban diesel trucks at the ports by 2035. The big issue is that California doesn’t yet have the infrastructure to accommodate all these electric trucks.
Gordon Lamphere: That’s a lot of amperage.
Jay Tanjuan: California has its own issues trying to figure that out. The folks really active at the ports are buying diesel trucks now to get grandfathered in until 2035, since a truck’s life is typically thirteen to fifteen years, which takes you right up to that point. By then, maybe costs come down, because electric trucks are much more expensive and harder to maintain than diesel, though obviously cleaner. It’s something we’re watching closely, because it affects the users and occupiers of our buildings, who have to make those decisions, and from a developer standpoint, we’ll at some point include EV charging for trucks in our truck courts. But where’s the power going to come from? The state is counting on offshore wind, and while I assume the technology is ready, permits and construction take years, and in California nothing is ever easy.
Automation and the Case for Class A
Gordon Lamphere: That’s going to be a huge load on the grid. Let’s follow up on design and construction changes and the evolution of logistics. What are the biggest evolutionary design trends in warehouses, particularly in a high-growth area, that will filter to the rest of the country? Automation, warehouse tech?
Jay Tanjuan: One of the biggest problems we have as an economy overall is labor, and it’s no different in the warehouse industry. We need workers to package, assemble, and do the distribution within the warehouse, and with a labor shortage, it’s very difficult to run your business. So the future is automation, and automation requires Class A buildings. In LA and Orange County, the average building age is about fifty years, across roughly 1.3 billion square feet of warehouses: LA has about a billion, Orange County about 260 million. A majority of it is older product, and older product doesn’t work well with robotics: lower clear heights, floors that aren’t flat and have slopes. The future is redeveloping a lot of these obsolete buildings into true Class A with super-flat floors for the robotics and mechanical equipment running up and down the aisles, and higher clear heights so you can stack higher, thirty-two to forty feet. Some of these older buildings are eighteen, twenty-two, twenty-four feet clear if you’re lucky, and that won’t cut it. That’s a big opportunity for developers. In the short term, there are headwinds, and construction starts are way down because of the economic environment. But once we get past this, the need for Class A will be that much greater to fill the demand from e-commerce growth. You’ll need warehouse workers, and if you can’t get them, automation is the answer.
Infill, Last Mile, and NIMBYism
Gordon Lamphere: I’ve been a contrarian voice on real estate Twitter about forecasting development further and further from metro areas. We’re seeing more last-mile and infill delivery and redevelopment in Chicagoland. Are you seeing that, and is it primarily coming from retail and other outdated asset classes, or from removing industrial sites?
Jay Tanjuan: Because of e-commerce, we want to be as close to the consumer as possible. Look at Amazon: Prime used to be two-day shipping, then one-day, and now overnight and same-day delivery. To meet those needs, you have to get closer to population and urban areas. The issue is that neighbors and residents don’t want warehouses closer to their neighborhoods, but they want their packages faster. It’s a constant battle, and we see NIMBYism a lot in our market. There have been several legislative efforts to create buffer zones around residential and other sensitive receptors like schools and parks. We’ve seen that year after year, and we expect the pushback to continue. For the last few years, those efforts have been shot down fairly early, and we’ll continue to push against them through NAIOP and other organizations with a direct interest in warehouse development, because for the betterment of the economy, we need warehouses to keep goods moving and consumers spending.
Gordon Lamphere: One of the biggest misconceptions is that people see warehouses and industrial as a dirty word. In Chicagoland, they imagine 1970s Blues Brothers images of Gary, Indiana, with smoke filling the air. Modern industrial warehousing just isn’t that anymore. We live in such a clean era of industrial, particularly post-EPA, and the environmental agencies in California and Illinois are both tough. Some warehouses are clean enough to eat off the floor. How do developers change that perception? It’s probably the biggest gap to allowing more clean infill in areas historically against industrial.
Jay Tanjuan: In California particularly, the process we go through is unique. We have the California Environmental Quality Act, CEQA, where you have to prove with science and data that the development you’re proposing is acceptable on greenhouse gases, noise, air quality, and traffic. That’s why entitlements in our part of the world take fifteen, eighteen, twenty-four months if you have to do an environmental impact report. It’s a stringent process, and historically, the air is now cleaner because of these laws the development community has adhered to. The images of industrial from back in the day are an unfortunate misconception. How do we combat that? Through education, and by being present and involved in the community. As developers, we’re investing in these communities, so we need to invest in other ways too. One effort I’m part of through NAIOP Inland Empire, and to some extent the NAIOP Southern California chapter, is going out to high schools to talk about commercial real estate careers and introduce the industry at a grassroots level. Slowly over time, that’s what it takes. The unknown creates fear, and the more present and active we are in communities, the better it bodes for us.
Gordon Lamphere: Pushing for development by being truly invested in communities is almost always the best way forward. At our firm, the development wing is a long-hold group. We don’t flip properties; we invest in communities for thirty, forty, fifty years, so not having that partnership doesn’t make sense logistically or financially. Developers would get so much more out of their investments and their careers if they invested in the communities they’re in.
Underwriting Land in Today’s Market
Gordon Lamphere: Setting political risk aside, what are the key metrics you use to acquire property for infill or general development?
Jay Tanjuan: The big thing right now is that we’re all solving to an untrended yield on cost number, and it’s changed a lot from two years ago. For context, two years ago untrended yield on cost would probably be in the high fours, and we might not even look at it because rent growth was so strong. Now, more than ever, we’re focused on that metric. Today in Southern California, depending on location, you’re solving to a six to six and a half untrended yield on cost in true infill areas. In secondary areas, you’d need six and a half, six and three-quarters, even seven in some cases. The problem is that untrended yield on cost is NOI over total project cost, and with the way the market’s going, it’s hard to peg where lease rates are. If you feel lease rates are flat or falling in some places, it’s hard to predict where things need to be and what price you can pay for land. The other big thing is that capital partners are more risk-off. Two years ago, everyone was looking for any reason to do a deal in Southern California. You’d take on entitlement risk, do forty-five days of due diligence, and close in fifteen. Those days are gone. Now we need time to get a site entitled and permitted, basically shovel-ready, before we close, and entitlements can take twelve, fifteen, twenty-four months. So you’re asking a seller, we’re paying thirty percent less than two years ago, and we’re not going to close for fifteen months. How does that sound? A lot of sellers say, if we don’t need to sell, we’re not going to sell. So you have to find sellers with an actual need, created by a life event: death, divorce, taxes, retirement. Two and three years ago it was like winning the lottery: can you hit this price? Sure, because we had rent growth, cheap debt, and readily available equity. Now you have to find the right seller, and they have to agree to the new normal on pricing. If they’ve been conditioned to think their values were much higher, that’s a hard pill to swallow, so there’s a psychological aspect we’re battling. We’re still in the early stages, and it takes time for folks to come around, but those who have to sell will sell.
Gordon Lamphere: In conversations with brokers everywhere, from Canada to the East Coast to Texas, Florida, Nashville, and Memphis, sellers are still looking at 2021 and early 2022 numbers. I can’t tell you how many times someone comes back saying they’d love to take the six-million-dollar offer we made in 2021, and we say, your building’s not worth six million anymore. That’s not a great conversation. Are you seeing sellers come down in California, or is there still no meeting of the minds?
Jay Tanjuan: A few sellers have come down, but not low enough for transactions to happen. There have been very few land transactions in our market in the past year. A lot of that is driven by the yield on cost we’re solving to and the way lease rates are behaving. Some pockets have more supply than others, so lease rates get affected, which hurts the equation, and then the land number needs to be much lower. Nobody wants to catch the falling knife. Before it was fear of missing out; now it’s fear of being early. But overall, land pricing has come down quite a bit, and it’s impossible to time the market. Nobody knows the true bottom. At some point you have to make strategic bets, because the market’s moved so much, and remember all the great things about California for industrial even with the uncertainty. There’s a lot of fear, a lot of people watching, some herd mentality, and a lot of it is triggered by what the Fed does. They’ve been focused on getting inflation to two percent, and the only lever is rates. Yesterday they announced they’d keep rates flat but hinted at raising them again later this year. The market wants more certainty. Until they set forth a plan to start reducing rates, I don’t think we’ll see much more activity.
Gordon Lamphere: I’m not going to make you play Jerome Powell.
Jay Tanjuan: It’s an unenviable job. He takes it from all sides.
The Final Four
Gordon Lamphere: But I’ll make you play one game before we end: the Final Four. First question: where do you see commercial real estate going ten years from now? It can be just Southern California. Put on the Nostradamus cap.
Jay Tanjuan: The future for Southern California industrial in the next ten years is going to be great. With e-commerce market share projected to reach the low thirties, that bodes well, because the way e-commerce is set up in the supply chain needs more warehouse square footage than brick-and-mortar retail. Our population of twenty-four million will take a few hits, but not enough to have a significant impact. The other big thing is automation, given the labor shortage, which I don’t see going away. You’ll need automation to augment your workforce. It also answers the knock that warehouses don’t provide quality jobs. With technology, AI, and automation, you’ll need very technical, skilled workers to operate, maintain, and develop it, which refutes the argument that the warehouse industry doesn’t provide high-paying jobs. And the push for electric vehicles will continue to make its presence known, and as a development community we’ll figure it out and adapt, like we always do with new technology. It’s not all doom and gloom. Most folks are resistant to change, but change is coming, and at the end of the day we’re all resilient, just like we have been over the two-hundred-plus-year history of this country. There’s a lot to be excited about for Southern California industrial, and it’s ready for a good long run again.
Gordon Lamphere: On the warehouse employee: I was recently at an event at our local community college where they were doing a warehouse employee training session, and many of the employees were learning Python and retooling automation equipment. There are plenty of white-collar workers today who don’t have the skills those warehouse workers have and are paid less. Modern warehousing, whether metal retooling or anything else, is vastly different from the 1950s or 1960s image. We need to change how the industry is perceived. Now let’s take a step back into your past. If you could give yourself one minute of advice in high school, what would it be?
Jay Tanjuan: I’ll preface it by saying everything I’ve done has made me who I am. The mistakes, the things I didn’t do, the things I did, all contributed to where I am, so I wouldn’t necessarily change anything. But I’ll offer advice for others in that spot. I’ve always been in sports, ran track in college, and in sports we always had coaches to help us get better and see things we didn’t see on the field. In business, a lot of folks don’t hire business coaches, but if you’re trying to get to the next level, the earlier you start investing in yourself, the better. It may seem like a lot of money up front, but it pays for itself many times over. I’d also tell myself to read more. Maybe when I was younger I wasn’t interested and it wasn’t the right time to absorb the material. Now I do audiobooks every day, all nonfiction, all self-development and inspirational biographies about folks who came from nothing and persevered, got knocked down seven times and got up the eighth. I’m filling my head with positive information constantly. I’ve cut out the news, other than industry news, and I’m not binge-watching Netflix, because that doesn’t help me get to the next level. I’ve been very intentional about how I structure my day, and I wish I’d done that earlier. That’s maybe more advice for the next generation.
Gordon Lamphere: My wife always tries to get me to watch Selling Sunset and says, it’s real estate, you’re learning. And I say, honey, no. But you mentioned books. Do you have a recommendation for a listener who wants to plug something into their audiobooks next?
Jay Tanjuan: I have a ton I could recommend, but I’ll give you the one I just finished yesterday: Walter Isaacson’s Elon Musk. It’s brand new. I’d listened to the earlier Musk biography by someone else, but this one was much better on his history with his father, growing up, and the difficulty he had. We talked about adversity making you who you are, and the mental abuse he went through growing up really shaped where he is now. Just one of his companies would be changing the world, and he’s built several: PayPal, Tesla, SpaceX, and now Neuralink, which is amazing. They’re doing human trials, approved by the FDA, implanting a chip so your thoughts can move your body, for people with ALS. And in his spare time he acquired Twitter, now X, and runs that. Plus The Boring Company, and SolarCity, now integrated into Tesla. He has his flaws, and some people say they’d love to be Elon Musk, but you have to take everything with it. You can’t want the money and not accept the rest. He went through a lot of trauma early on, and he’s difficult with his employees, though he pushes them to new heights. You can’t pick and choose what you like. It’s a long book, and I sped up the listening a little, but I didn’t want it to end. A fascinating story of one individual doing all of this.
Gordon Lamphere: Great recommendation. One final recommendation you have to make: the whole reason for the podcast is that we seek out men and women in the arena who know other individuals worth bringing on. Who’s your recommendation for our next guest?
Jay Tanjuan: There are a lot of options, but I’d lean on folks active on LinkedIn in our market. The first name that comes to mind is Sean Ward with CBRE. You probably know Sean. He’s extremely active on LinkedIn with quite a following, and he’d be a great addition. Another is Justin Smith. He has his own podcast, he’s very active on LinkedIn, and he’s an author. He wrote Industrial Intelligence, and I believe a second book is on the way. I listened to the first on Audible, and it’s very highly recommended. Those are two names in our local market off the top of my head, and I’m happy to recommend more offline.
Gordon Lamphere: Great names. One more question, the second most important: how does somebody reach out to you for more information, development advice, or to work with you?
Jay Tanjuan: The best way is LinkedIn, and we can take it from there. Just search my first and last name and I’m there. I’ll also add that our firm, Schnitzer Properties, has its own podcast, Under Development. I’ve been the host, and we’ve had six episodes so far, one a month. It’s another way to reach out to people and get a wider audience, just like you’re doing. LinkedIn is the best first step, and then we’ll set up a call or email from there.
Gordon Lamphere: Jay, thank you so much for hopping on. We’ll put your contact information in the description, and we’ll have to have you on in the future.
Jay Tanjuan: Thank you, Gordon. Happy to be a guest any time. Really enjoyed it.
Gordon Lamphere: Thanks again to Jay. If you enjoyed the podcast, please give us a like, a comment, or a review. Your subscriptions and interactions truly matter. They help us with the algorithm and help us continue to get quality guests. You can find us on YouTube, Spotify, or wherever you get your podcasts. I’m Gordon Lamphere with the Real Finds Podcast. Thank you for listening.
Van Vlissingen and Co. has been the Midwest’s oldest commercial real estate brokerage, development, and management firm since 1879, and today is independently ranked the #1 commercial real estate agency in Chicagoland, home to the #1 independently ranked agent, Gordon Lamphere, and the region’s #1 ranked commercial property management team. If you own, manage, or invest in energy-adjacent, mixed-use, or transit-oriented property across Lake County, the North Shore, the Northwest and O’Hare corridors, DuPage and the I-88 corridor, Will County, or southern Wisconsin’s Pleasant Prairie, Kenosha, and Racine markets, contact Van Vlissingen and Co. at 📞 847-634-2300 or 🌐 vvco.com. For a market-wide view of where these dynamics sit today, see our State of the Chicagoland Commercial Real Estate Market for Q3 2026.