Greg Lauze:

We have facilities now that have a lot more automation, and we think that that is at the early stages. And as AI goes from training to implementation, we do believe that that's going to be something that impacts not the building so much, but the use case. And the thing that we come back to is they all need more power. And that's the one spec that's really changed.

Nancy Lashine:

Hello and thanks for tuning in to Real Estate Capital. I'm your host, Nancy Lashine of Park Madison Partners. Capital is a lifeblood of the real estate industry, but the decisions on where and how it's allocated are driven by people and personalities. Who are they? What motivates them? What can we learn from their experiences? On this show, we introduce you to some of the real estate industry's most influential thought leaders and decision makers, and we talk about what is important to them, how they make critical decisions, who has influenced them, and a lot more.

Our guest on today's episode is Greg Lauze, co-founder and chief Investment Officer at NorthBridge Partners. NorthBridge is a vertically integrated real estate manager that invests in small to mid-size industrial assets with a focus on coastal market. With nearly 20 years of experience in the industrial real estate sector, Greg has worked in a variety of roles, including acquisitions, asset management, fundraising, and portfolio management. Prior to founding NorthBridge, Greg worked at Blackstone and Colony Capital. Park Madison has had the privilege of working with NorthBridge on several fundraisers starting with Fund two in 2018. We've watched the business grow from a small emerging manager to a sector leader with over three billion of assets under management. Greg and his partner, Dean Atkins, are also the founders of an incredible organization called Coffee Connectors, helping first-generation college applicants and students find jobs in the real estate business. They've built an extraordinary culture both within the firm and a generous ecosystem around them. In my conversation with Greg, we talk about the growth of NorthBridge and some of the more pivotal moments throughout the firm's history. We also discussed Greg's background and career path, NorthBridge's investment approach, how the opportunity set in industrial is evolving and much more. Greg, we've been looking forward to having you on the podcast for a very long time, and super exciting to have you. So thanks for joining us.

Greg Lauze:

Thank you, Nancy. I'm honored to be here.

Nancy Lashine:

Tell us a little bit about how you got into the real estate business and before you started NorthBridge.

Greg Lauze:

Sure. Well, let me take a full step back to the very beginning because I think it had a big influence on my career in real estate. I grew up in a small town in northern New Hampshire called Berlin, New Hampshire, closer to the Canadian border than Boston. Great place to grow up. Very much a mill town where most of the people in the town would go to high school, go work in the mill.

Nancy Lashine:

What kind of mill?

Greg Lauze:

It was a paper mill. Anderskoggen River, James River paper company. And that was really the lifeblood of the local economy. My father and mother didn't go to college. Mother was a bank teller. My father decided he didn't want to work in the paper mill, and he wanted to learn the construction trades. So he started with one, then learned the next. Both of my parents are very close with today, and my father just basically learned every construction trade until the point where he started his own business in the mid '80s. General contracting business. So in my blood from a very early age.

Nancy Lashine:

So when you say he learned every trade, plumbing and electric as well as general contracting and ...

Greg Lauze:

Yeah. Everything, plumbing, roofing, framing, everything from the start until to the point where he felt like I could build a house myself and do that project. And basically did that through the late '80s and then we hit the recession and the savings and loans crisis. It's a good lesson for me. He had to shut down the business. We had to move all of our family about three hours south, closer to greater Boston, just over the border in New Hampshire. And at that time, it was leaving behind all of my family, all of my friends. That was a really tough moment in hindsight. Never know where your breaks are going to come from, but that turned out to be a great break for me personally, because the other thing that Berlin New Hampshire had was part of the community was hockey, and I was playing hockey. And in the greater Boston area, I get a lot more exposure, which ultimately led to me being recruited to go to prep school, which I didn't even know what a prep school was.

Nancy Lashine:

Wow.

Greg Lauze:

This place you go sleep overnight. And I didn't know. And that just opened up new doors of opportunity and ultimately led to me being able to play hockey at Boston College, which was a very formative period for me, both in terms of personal development, but also a lot of things I take with me today as we're building the company.

Nancy Lashine:

Well, was this ice hockey?

Greg Lauze:

Ice hockey.

Nancy Lashine:

Okay.

Greg Lauze:

My wife was a field hockey player and is now in the BC Hall of Fame. I am not in the Hall of Fame and not close.

Nancy Lashine:

Wow. Good athletic genes in your family.

Greg Lauze:

She's the better one.

Nancy Lashine:

Oh, that's amazing.

Greg Lauze:

Yeah.

Nancy Lashine:

Did you think you were going to go to college before you got recruited or was that something that evolved out of playing hockey?

Greg Lauze:

Yeah. My parents had always instilled trying to go to college because they couldn't. And that was always a piece of it. But it certainly gave me more opportunity to get into college and a focus there. I thought I was going to go play in the NHL. I got hurt my senior year and realized that I'm not going to make the NHL. A lot of my teammates did. And so I decided I'm not going to play hockey. I'm going to turn my focus to career. But it is now senior year, halfway through, I've never done an internship. I've worked on job sites with my dad and learned that I was really behind the eight-ball in terms of getting a job.

Nancy Lashine:

How'd you find a job?

Greg Lauze:

I was fortunate through Boston College, one of the guys that was close to the program said he'd make a couple of introductions to people. And he said, "I'll open up some doors for you and then one thing you should do is ask that person, when you're done meeting with them, will you set up coffee with one other person." And I thought, "Okay. I'll do that 10, 12 times and find a job." I did over 70 coffees. And we'll get back to coffee theme. But it was really an eyeopening experience. Ultimately, through that, I got someone to take a chance on me at a small developer called Spaulding & Slye, which was a developer, investor and brokerage firm in Boston.

Nancy Lashine:

Not so small anymore.

Greg Lauze:

And then shortly after I joined, they got acquired by JLL. That was the start.

Nancy Lashine:

So you went from JLL to where? Tell us how you got to NorthBridge from JLL.

Greg Lauze:

Sure. That process of coffees in college, I met a guy who was starting Colony Capital's value add funds that were going to be based out of Boston. And he said, "You don't know what you don't know, but go learn something and keep in touch." And so when I was at Spaulding & Slye, I reached out every couple of months and about a year and a half in, he said, "Okay. There's an analyst job. Come in and interview for it." And I went in and interviewed for the job, and the hiring manager was a guy by the name of Dan Dretler, who's our CFO at NorthBridge today. And he looked at my resume and he looked at the job description and he said, "This is a pure Argus role and you don't really know financial modeling or Argus. You seem like a nice kid, but go learn that." So I said, "Okay." I called the managing partner who had set it up and I said, "Well, thanks for the opportunity, but I know I don't have the skillset." And he said, "No, you're hired." And I said, "Oh, okay." And he said, "I talked to Dan and he's going to teach you everything. You seemed like you might work hard." And so 20 years later, Dan and I are still working together and he's a partner and a great friend.

Nancy Lashine:

Oh, that is a great story. When you reached out every couple of months to this person, you'd met over coffee how did you do that? Because I think for so many people, that's really hard.

Greg Lauze:

It is very hard. You're trying to be persistent, not annoying.

Nancy Lashine:

Right. Right.

Greg Lauze:

What is the right amount of persistence? I'm naturally a little bit more introverted, and so I don't like to bother people. And so it pushed me out of some comfort zones to do that, and I'd get a response and say nothing now, thanks for checking in. It was a great experience in terms of persistence too.

Nancy Lashine:

So you went from Colony to-

Greg Lauze:

Blackstone.

Nancy Lashine:

Blackstone. Okay. Tell us about that.

Greg Lauze:

Yes. So my experience at Colony was great. I did some industrial, I moved into acquisitions. The GFC happened. That was a great experience in terms of what not to do with structuring debt. And as you know, coming out of the GFC I had been put into workouts because we weren't acquiring anything. And so I was doing workouts, which was a wonderful experience in hindsight. I learned a lot. And one of my colleagues, Alex Hill, who had worked at Colony and then was at Blackstone, I called her and said, "I'm thinking about something different. Is there anything at Blackstone?" Thinking high bar. She said, "Well, nobody's really hiring for acquisitions but there's a unique role where it sits half under the investor relations fundraising, which was Alex, Kathleen McCarthy and Mike Casey, and then half doing special projects for John Gray." And I basically didn't need to hear anymore. I said, "I'm interested." I knew I wanted to start my own company someday. I had only known the acquisition side. I said, "This would be a unique experience." I was there for a couple of years and I'd say it was very short, but it was like my MBA in real estate. I learned so much during that period.

Nancy Lashine:

And you were in New York and then you moved back to Boston.

Greg Lauze:

That's right.

Nancy Lashine:

Right. So why did you want to start your own company? What led you to think that and what did you think that meant?

Greg Lauze:

Yeah. I guess I always knew that I would like to have control over my own destiny from a young age. And I thought I would like to either be a partner at a larger firm or start my own firm. And I just had that entrepreneurial itch always. So the first 10 years of my career, I always had an eye on, if I'm observing something, what are the things I like about that? What are the things I don't would want to incorporate in a business? I started the business at 32 years old. In hindsight, way too young.

Nancy Lashine:

Not really.

Greg Lauze:

I was confident enough at the time.

Nancy Lashine:

It feels good now, right?

Greg Lauze:

Yeah. It feels good now. But I looked at it-

Nancy Lashine:

That is amazing. 32 years old.

Greg Lauze:

Yeah. And I looked at it and said, "I can do another 10 years at a larger firm and then go out and start building a track record." And I felt like the track record was there and I'd say most importantly, my business partner, Dean Atkins, who was a lawyer at Mintz Levin, was the go-to lawyer for all the Colony transactions. We worked on a lot together. He had moved from being a lawyer to a broker at a large brokerage firm doing national leasing. And I had lunch with him and I said, "I'm thinking about doing this." And he's like, "I'm in the exact same spot." And so that pushed me over the edge that we were there. We had completely opposite skill sets in a good way, and we saw the big picture the same way. And so that was the final push to really go out and do it.

Nancy Lashine:

How did you know you'd be good partners? It's such a hard thing to know. It's like you think when you date somebody before you get married, it's just a really hard thing to know.

Greg Lauze:

I don't think that you can absolutely know. I think having worked with someone for a long time in good times pre-GFC and then post-GFC, we had some tough contentious workouts with other counterparties. It's not perfect but it's a really good indication of whether you're going to mesh together. And so we had many years of that, which gave confidence. We didn't know, but I couldn't have imagined it going any better than it has. And so that's very rewarding and fulfilling on a lot of levels.

Nancy Lashine:

So you started this company. How did you come up with a strategy?

Greg Lauze:

So a couple of things to the strategy. One, when I was at Colony, we were buying some portfolios of industrial assets. And I looked at who we were buying from. And there was these local groups. Some had syndicated high net worth equity, some had JV allocator funds, and they looked at what they bought them for, what they did. They fixed them up, they leased them, and they sold them to us. And I said, "That seems like a really interesting business model." At the time, post-GFC was a lot of focus, as I'm sure you recall, on double fees, double promote. I said, "I think we can build a vertically integrated company where we can do that ourselves. It'll be hard, but I think it can be done." And I even brought it up at both Colony and Blackstone and said they're doing all product types everywhere globally and it just was too niche to really make sense in a larger format.

Nancy Lashine:

Right. So you stuck to industrial, you started with the two of you. How'd you find capital initially and how'd you get your first couple of deals going?

Greg Lauze:

Yeah. We often get that question from folks like, "You must have had capital lined up or some deals." No. It was me, Dean and his dad's office trying to piece together. And so actually Dean went out and did some leasing work to keep the lights on while I was searching for our first deal. He had a good network of high net worth capital. We basically said, "If we find good deals, we'll be able to find the capital." It was harder than that, but we did find the deals. We did a couple syndicated transactions, and then we ran into a family office that we've been working with for 10 years, still work with them. They've been fantastic partners to this whole thing. They saw our vision in creating a strategy, and then they backed what we called our fund one, which was really just a strategic joint venture. It was a proof of concept that we could do it.

Nancy Lashine:

Right. Right. And you started to build out a team. How did you figure out how to hire people? Had you ever done that before?

Greg Lauze:

No.

Nancy Lashine:

Yeah.

Greg Lauze:

No. That was hard. So I think what we leaned towards were existing relationships, people that we admired, that we worked with. And if you look across our team, especially those who have been with us the longest, we either worked with them at a prior firm or we worked on other sides of the table with them. And that was our first comfort level in hiring people that we knew. And that gets harder as you grow. And we've had to work hard at becoming better at the hiring process. But we still lean towards that. And our goal is get the senior people in first, which is expensive, but the right thing to do in the longterm. And then hire around them. We found our third partner, Dave Aisner, at the launch of fund two. And Dave's been an amazing partner this entire ride, and we've continued to build organically.

Nancy Lashine:

When did you launch fund two?

Greg Lauze:

2018.

Nancy Lashine:

2018. Okay. And then Fund three you launched just at the very beginning of COVID?

Greg Lauze:

Well, the planned launch, as you may remember. We were going to launch in March of 2020. We had a road show. The first road show set up in Texas. And I remember calling Dean and saying, "I don't think we're going to Texas." And so we paused, we held off on the launch, we turned our focus to the existing portfolio. Those couple of months, we didn't know what was going to happen as the rest of the world was figuring out the same thing. And by mid-summer we realized that there was a lot of good things happening in industrial, and we saw demand picking up. And so we launched a virtual fundraise that summer with your help.

Nancy Lashine:

And as I recall, you grew the team. Your team just grew dramatically over the next year because you had now a much bigger fund to invest and everybody was working virtually. That's crazy. That was the first time I think anyone's ever really had to grow a real estate team virtually. So tell us about that.

Greg Lauze:

Yes. We went from eight people in fund two to 22-23 and fund three, and that was really tricky. It was trying to find the right people again. I think we did hire a lot of people we knew. But that was challenging. And we did some outside meetings and all that stuff.

Nancy Lashine:

With lots of Purell. Yeah. Yeah. Yeah.

Greg Lauze:

And then we got through that period. And our business, Nancy, as you know, it's a very people intensive business. It's a lot of blocking and tackling. And so as we grow our fund size, we have to grow our headcount to be able to get more transactions through the system.

Nancy Lashine:

So what did you learn about building a team and building culture over the last few years?

Greg Lauze:

I think that we did realize early on that we needed to be in the office together. We tried various things as the rest of the world did too. And we realized, especially when you're building a culture really from the ground up and when you get new teammates, being face-to-face really matters. And that was important for us. So we did push that. We still have some Fridays from home virtually, but we really feel like we needed to be in the office to build that culture. And culture is such a ... The word is thrown around a lot. And I don't think I had a real appreciation for the impact of it until we actually tried to build one.

Nancy Lashine:

Yeah.

Greg Lauze:

It's difficult.

Nancy Lashine:

Yeah. What is culture for you? What does that mean?

Greg Lauze:

Yeah. If I were going to describe our culture ... There's different ways to be successful. You can have different cultures that can get to the same place, but what's right for us and our strategy and our people and just how we are in the world. So our strategy is a lot ... I'd say I learned a lot of it from my time playing hockey at Boston College. The coach is their legendary coach, Jerry York, who is the winningest coach of all time. Really had a culture of discipline. But second, which was really important was there was no individual credit. If you scored two goals in a game, but we lost the game, it doesn't matter.

That is part of the ethos of our culture is we're not going to be a place for people who are lone wolves, who want to run with their own things. We do so many transactions, we need people who really are going to put the team first. You have no individual track record. It's our collective track record. And ultimately we need to win. We need to be successful in our funds so that our LPs are happy. If they're not happy, your individual credit doesn't really matter. And so that works really well for people who buy into that and others, it just doesn't work. It's just a different way of doing things. For the people that are here, I think they would say that they love it.

Nancy Lashine:

Yeah. Yeah. Before we start talking about what you do and industrial fundamentals, you have something called Coffee Connectors. And I just want to ask you, how did you come up with the idea of coffee connectors? And maybe share with us a little bit about why you started that program.

Greg Lauze:

Yeah. Well, I got to give the credit to Dean because I think it was really his brainchild that he helped build. But it was part of my experience. I talked about all the coffees that I went on trying to find a job. I think it was 2016, we were talking about it. I said, "It's so hard for these kids without a network to get in. It's not like you can apply in the real estate private equity business if you don't have experience. How do you break in?" And we realized a lot of it is who you know. And if you don't have that built in network, it's hard to break in. And we said like, "That's something that's not right about our industry and we could only hire a few people, but what if we created something?" And Dean saw the vision here and has helped create that. That we could help them by opening up our network. People that would take a coffee again, pay it forward with another coffee, and then we would formalize that process to help first generation college students to build a network off of our network.

And then we've since really grown that, and Bea Thevenot, who I worked with at the Colony and also works with us, has really taken it to the next level in terms of really formalizing in a way where we can get kids into the program. Now we have opportunity internships every summer, and we have other firms that are signing up for that. And we just think we're able to have a greater impact overall in giving people the right opportunity than we could just by ourselves in one company.

Nancy Lashine:

It's an amazing program. How many kids do you think you've touched?

Greg Lauze:

Hundreds through the Coffee Connectors. We at NorthBridge do eight internships every summer, and we have an alumni network that comes through those. And now it's becoming competitive, which is great. The kids that work the hardest, that put forth the most effort, they deserve that opportunity. And our goal is to continue to have other firms say, "I'll take what you guys have done here and others have done." And that really grows the alumni network. And I think hopefully our vision one day is those people will all come back together and really they're going to pay it forward wherever they are and their employers will make sure that everybody-

Nancy Lashine:

It is such a great program. I'm so excited about it. The person we hired last summer was phenomenal. And I would have hired her again in a nanosecond as a full-time person. Although I said to her, and I think it's the right advice, she should go somewhere else and build her network. And she got a job offer right away from a phenomenal company and I'm a little jealous of them. So I think that's great.

Greg Lauze:

Everybody that's putting in the work deserves the shot. They deserve a shot and that's what we're trying to do.

Nancy Lashine:

Yeah. Yeah. No. It's a great program.

Greg Lauze:

Thank you for your support.

Nancy Lashine:

Having remembered what it was like trying to break in and get my first job I totally ... It's a great thing that you're doing. Let's talk about the industrial business. So industrial has been the darling for the institutional world for the last eight years probably. Fundamentals have shifted. Tell us where we stand today in the industrial business.

Greg Lauze:

Yeah. I think take a step back to five, seven years ago, I'm talking broad US market, but we had fairly imbalanced supply and demand and maybe demand started to really outpace supply by a little bit so slightly falling, vacancy. Then you had COVID. It pulled forward a lot of demand. Vacancies went to all time lows. So then tenants took more space than they needed because they were getting shut out. And developers did what they do best. They built too much space. And a lot of that space was started in '21 and '22 and delivered '22 to '24. And now we're seeing the construction starts are down 80%, they're falling off a cliff, but we're working through that excess supply.

Nancy Lashine:

They're down 80%.

Greg Lauze:

80% from the peak and 50% from pre COVID levels. So they are at levels we haven't seen since 2011, 2012.

Nancy Lashine:

Wow. We were talking about construction costs and what's happened there. Tell us about that.

Greg Lauze:

Yeah. I think, one of the reasons we're optimistic about rent growth in the future is yes, we have this excess supply, some markets more than others. But we still have healthy demand. It's still positive absorption. And when we look at construction going forward, Nancy, our construction costs, we're looking at building ... On a daily basis, we're looking at different sites. And one thing that I think is not talked about as much is that construction costs are significantly elevated. 50 to 75% from pre COVID levels and they haven't come down that much. Maybe a little bit, but not much in terms of cost.

Nancy Lashine:

So in four years we're up 50 to 70%. That's a lot higher than just normal inflation.

Greg Lauze:

Yes. And now it started to ease off a little bit, but we're talking 5%. And so when you really look at the numbers, there are some markets where truly, if you have a $10 rent and you're solving for a six and a half percent yield on cost, it's $155 a square foot to build it. That's actually what it costs to build it without land today. So you can get the land for free and it's not going to-

Nancy Lashine:

That's hard and soft costs?

Greg Lauze:

Hard and soft costs. All in fully stabilized. So the combination of higher rates that you need to solve for and the higher sticky costs, we think there's going to be structural issues. Not in every market, but in a lot of markets towards new supply. And I'm specifically talking about that a hundred thousand to 200,000 square foot building. Maybe the million square footers have more economies of scale, but where we focus that last mile, we think that it's going to be even slower to pick up on the construction side than maybe many think.

Nancy Lashine:

Is the cost that much higher just because of interest rates, labor supplies, or is it also the specs of the building have changed and you need to put different things in there than you did in the past?

Greg Lauze:

It's not so much the specs of the building. It's mostly just from the input costs of higher labor, higher material costs. And I definitely cannot point to anything that substantiates this, but anecdotally, we think some of the boom in the data center space, which effectively are powered warehouses, super powered, has maybe not let those prices fall off as much. That's just a guess. It's a hunch, but it really is hard and soft costs across the entire spectrum.

Nancy Lashine:

So is automation or AI changed what you're buying at all today or what is being built today?

Greg Lauze:

Yeah. Absolutely. There's a lot of different pieces to that, but five years ago we'd get asked what have you seen in automation in your buildings? And there really wasn't much. There was occasional instances. We're seeing that today. I'd say it's at the first inning. We were seeing, especially with advanced manufacturing uses, which more have been brought back on onshore. And those uses, we're seeing whether it'd be, we've got a tenant that makes cardboard boxes for Amazon and others. They are automating their processes, less labor, more efficiency. We're seeing it in defense, we're seeing it in aerospace, we're seeing it in certainly biotech healthcare industries. We have facilities now that have a lot more automation and we think that that is at the early stages. And as AI goes from training to implementation, we do believe that that's going to be something that impacts not the buildings so much, but the use case. And the thing that we come back to is they all need more power. And that's the one spec that I'd say out of your question that that's really changed.

Nancy Lashine:

So when you talk about advanced manufacturing, is that synonymous with automation or is there something else in there?

Greg Lauze:

I don't think it's synonymous with automation. Those processes that are ... People ask what is advanced manufacturing? Well, it's not t-shirts and hats. It's high value goods that are being produced. And so the processes, especially around healthcare, medical devices, biotech, defense, those areas really need sometimes clean room type specs. These aren't labs like lab office really, but they have components that look like that and they need fine-tuned machines to be able to produce them. And so that's where we've seen it first. We haven't seen it yet in the pure call it like delivery space that's still fairly manual inside the building for last mile. It's starting to change. We're seeing a little bit of that. We would guess that in five years we'd sit here and say that has become highly automated as well. The packing, the supplying that last mile push, the actual packaging. The picking and packing in the first mile that's automated, but the getting packages to your door, sorting through those packages is still a manual process in a large part.

Nancy Lashine:

Interesting. You would think that Amazon, because they do so much of that, would have figured out how to automate that already.

Greg Lauze:

I'm sure they're working on it, but when we walk through our Amazon facilities today, there's still people putting their packages in piles, putting them into their vans and delivering those. And we haven't really seen the reverse logistics wave pick up either. And that's an area that we think at some point ... These returns are really expensive to companies and there's been so much growth in e-commerce that appropriately so the focus is on keep growing market share, but at some point the efficiency around return need to be fixed. And that'll create we think more opportunity in the space as well.

Nancy Lashine:

Are you seeing robots in your facilities yet?

Greg Lauze:

We've seen a few. I wouldn't say it's pervasive yet, but we're seeing it. The technology is certainly there and you're seeing it again in the first mile facilities that picking and packing starting to become automated. Feels like we'll see more robots in the future. I don't know what that'll look like, but it's interesting.

Nancy Lashine:

What's happening on the ground in terms of land costs. You hear if you're in the real estate business about what's the newest play and all these real estate guys who in the past might've gone out and done construction are buying land and doing powered land plays. Is that bidding up the price of land? Is it making your job more complicated as you look to figure out where to locate? How are you thinking about that?

Greg Lauze:

Yeah. I think we've just seen it in pockets like Northern Virginia. You're probably not going to be able to compete building a warehouse if there's a data center use, you just can't compete. It's one of the things we loved about industrial long before e-commerce is it's the worst use case for land and therefore you can't go over-

Nancy Lashine:

I thought that was outdoor parking, but-

Greg Lauze:

Yeah. I'd put them both there. And so yeah, we're starting to see that in certain pockets and ultimately that'll just lead to less supply if that's the case. And gives us some comfort there too.

Nancy Lashine:

We used to say real estate's all about location, location, location. Are you thinking it's all about power, power and power today in the industrial world? Or how is that impacting your view of what to buy and where to buy it?

Greg Lauze:

Yeah. Location is absolutely still number one. Because the supply chain costs are still rents 5%, transportation and labor is 75%. So that drive time still carries all. However, there are certain tenant requirements that are changing in real time. For instance, we've been talking about EV charging for a while, but this is the first year we actually completed a couple of those projects for tenants. And just to give you a sense, the building that we did our first one at the EV charging needed five times the power that the building needed. So it's-

Nancy Lashine:

Is it for cars or for trucks?

Greg Lauze:

That's for fleet, for trucks. Not the large trucks, but your midsize delivery trucks.

Nancy Lashine:

Wow. So what's going to happen when we get the big trucks?

Greg Lauze:

We need exponentially more power. I think that whether it's automation, advanced manufacturing, the energy transition, the strain on the grid, we keep coming back to assets that are well located and have power or can generate more power through adding on-site infrastructure, renewable or otherwise are going to be both future-proofed and also potentially get higher rents. We've actually had a few instances where we had heavy power at a building. We got a biotech manufacturer, they paid a premium rent, it wasn't, this is a nice to have, it was a need to have. If you don't have that power, we can't look at your building.

Nancy Lashine:

How hard is it to get that power?

Greg Lauze:

It's case by case. Some areas that lead time can be many years. And so you lose that tenant opportunity. And so we have built in over the last couple of years a real due diligence process to understand where is that power, how much capacity are in the transmission lines, where's the closest substation? Get a sense of how much power could be there. And then equally important, what can we supplement with on-site solar battery storage and other ways to increase that power profile?

Nancy Lashine:

Do you get a commitment from the utility that once you figure out how much power is available that they will provide it, and how assured can you be before you actually have to go hard a deal that it'll be there?

Greg Lauze:

Yeah. I think the way that we look at it is, does it have sufficient power today? And if there's a real gap to that sufficient power without a real timeline and cost, we're probably going to be very careful about pursuing that deal. Most of the deals that we close on, we can get a pretty good sense of time and cost to bring in additional power before going hard and closing on that deal. And we also just screen for deals. If we're looking between two equal deals, we're going to choose the one that has more power in place.

Nancy Lashine:

Many years ago, I remember hearing Hamid from Prologis speak and someone said, "What's the company ..." This is many years ago. "What's the company going to look like in five years?" And he said, "We'll be in the logistics business. Because we know more about how our tenants move their goods because of the systems in place than our tenants know. So they'll follow us around and we can determine where the next place should be that they're going to locate." Does that work for you as a ... Not as broad a platform, but you're really in the last mile space. Is that a meaningful component of your relationship with your tenants?

Greg Lauze:

A hundred percent Nancy. I think reading articles are not going to tell you about where the puck is going.

Nancy Lashine:

Yeah.

Greg Lauze:

It's listening to your tenants, being close to them. It's part of the reason we brought our property management in-house years ago is we want to be on that front line. That's really valuable information because you can pick up trends and not just the tenants you have, but other tenants that are coming through the buildings. What are they looking to do? For every building you have, you're going to see multiple tenants come through that building if you have any leasing to do. And really just looking for themes. What are the common themes? Sometimes there's nothing. And sometimes you start to see these trends like power where we say this is ramping up not just for one reason, but for multiple reasons.

Greg Lauze:

And yes, I think that there's no better source of future investment opportunity than listening to your customers.

Nancy Lashine:

Is EV storage something that's going to continue to grow, do you think? Or that you see all the headlines today that EV has slowed down? Where do you think it's going?

Greg Lauze:

Yeah. That one's tough.

Nancy Lashine:

Did I say EV storage by the way? EV charging. I apologize.

Greg Lauze:

We think that EV charging ... We don't know the ultimate path. There's certainly growth. And even though it's slowed in the passenger car segment of the market, it really hasn't taken off as much in the fleet and heavy-duty vehicle side. But we're seeing it increase. So it's how big is the hockey stick? I don't know. Is it a hockey stick slope? I don't know. But there's an increasing demand there. The piece that we're most bullish on today is just the battery storage component of that. That's where we see real growth and scale opportunity. Because the demand is there now for it. It's not a future demand that we're guessing at. And so that's where we're focusing a lot of our effort.

Nancy Lashine:

Where are the batteries made?

Greg Lauze:

All over the world, but Tesla is one of the largest right now. So if you look at Tesla's earnings report, I think they projected a 50% growth in their ... They call them mega packs. But they essentially look like truck containers that are batteries. And that's what we're pursuing on our sites. They only take up six, 12,000 square feet of land, very small area. But if you're in the right locations with the right electrical infrastructure, you can have a really interesting opportunity to put that there. And similar to solar, you can contract with the utility and create really uncorrelated and quite interesting revenue streams.

Nancy Lashine:

Are there parts of the country that you're operating in where it's really hard to get power?

Greg Lauze:

Yes. I think it's getting harder everywhere to get power. Our markets, certainly Virginia is the obvious one I said before. That is probably the toughest. But we're starting to see it down in the Richmond market as that migrates. And this is just a guess, but as we go from AI training to the inference, the use case, we believe that that'll could look ... We don't know. But it could look a lot like what happened with the supply chain where you went from mega facilities to all these smaller nodes that are needed for latency and time and that could change the paradigm in terms of power demand everywhere.

Nancy Lashine:

Has all the conversation about tariffs and the current administration impacted your thoughts about location for your assets?

Greg Lauze:

No. I don't think the tariffs alone is changing our view. I guess our view is the economy needs a certain amount of goods and whether those goods are being produced domestically or they're being imported, yes, certainly around the edges some markets may be impacted more than others, but we think the end result is probably not an increase or decrease of the amount of goods we need. If we're manufacturing here more, that's probably a good thing for industrial because in addition to the storage needs those manufacturers need warehouses as well. And even just the large manufacturing, like the EV auto plants, not where we play, they build a whole ecosystem of suppliers and shippers and everything around them.

Nancy Lashine:

Why is cold storage so hard to come by?

Greg Lauze:

Cold storage is a very interesting space. We've looked at it many times and I guess what we determined for NorthBridge is the players that do it well are the ones that have real scale. The basis is approximately double a normal warehouse .now you have a sticky tenant and they're paying a higher rent. And it's very interesting from that standpoint. But for us, if we can't play a hundred hands and know that we're going to lose five of those it just isn't something that we're comfortable with the downside risk. I think it's a really interesting asset class for those who are doing it well. It just isn't quite a fit for us. And we see all the macro demand there. And so it's just, again, what is it that we do well? And if we can't do something well within a macro trend, then we don't pursue. If we think we can do something well, like the battery storage piece or the energy infrastructure on our sites, then if we can do it well then we'll pursue it.

Nancy Lashine:

Do you think ultimately selling energy to your clients will be part of your e-stream?

Greg Lauze:

It could be. We have solar on certain assets where the tenants want to buy that solar and we have contracts with them. They are buying the solar power, certainly in the battery space to redundancy and zero downtime type facilities. You could see a real use case there. And we're actually going through and talking to all of our tenants right now about potential battery storage and solar and seeing that demand. I'd say it's still early innings, but it's an increasing demand from ... It was almost non-existent five years ago.

Nancy Lashine:

Right. Right. Switching gears, It's so complicated to be an operator in the industrial business and there's as we've just talked about, so many things to know and it's ever-changing. And at the same time you have a whole other set of constituencies, which is the fund management business and your investors who are your clients and ultimately, are fiduciary to them. How do you manage both aspects of the business, which are equally important?

Greg Lauze:

Yeah. It's, it was part of our initial design of the company, and so we've tried to get better at each step. I think one of the key things has been, again, finding partners that ... With Dean Atkins and Dave Aisner, I've been so fortunate to have partners that they're excellent at things that I am not great at. And I think we complement each other in terms of recognizing where our weaknesses are. And so I don't know that I could ever do this business alone. Having the partners that each have different skill sets has allowed us to focus where we're strongest, whether it's the fund management side, the investment side, the operation side. As you know Nancy, building a company, you need great people. And we have such a great team that a lot of them have been with us now for five, six, seven years, and they are really allowing us to focus on our business because they're so good at what they do.

Nancy Lashine:

Right. So how's the fund management business changed for you in the 10 or so years that you have been in it? And how are you adapting to that change?

Greg Lauze:

Yeah. I think when we started out, we were convincing people why industrial. Truly, it sounds crazy to say, but it was, why do people need these facilities? And we had those conversations and we had to convince people that if we bought them one off, fix them up and packaged them, we could make a pretty interesting return. Then it turned to how can you compete when rates are so low? That was that period. And now it's where are the fundamentals going and is it going to continue to be a good space?

I think we look back and we believe that in the long term there's these variations in cycles, but I think one thing that COVID highlighted for our asset class is that it's not a nice to have, it's a true necessity of the economy. The supply chain is so critical. It is critical real estate .it had to function during the depths of COVID to keep us open. And I think that there's been some acknowledgement coming out of that, and certainly now it's very competitive .but we haven't moved away from ... We think it's critical real estate. We think it will always be critical real estate. And we haven't moved up in terms of deal size. We stick in that deal by deal size because we think we can create more value buying there. We have to do it with a lot more people to stay true to that strategy, but we couldn't be more excited for the future than we are today and a reset in the market. Everybody wants it's painful to go through, but it is a cyclical business and now is a good part of the cycle in our opinion.

Nancy Lashine:

Do you feel like the industry is really bifurcated to be the very large managers, a couple of whom you worked for earlier in your career, and then vertically integrated operators like yourself, and has that informed how you run the business?

Greg Lauze:

Absolutely. I think, it's been well documented, the barbell approach that's going on. For us to continue to be successful, we think we need to be great at our operations. We think that that's where we're going to outperform in that piece of our business with AI and technology and our ability to continue to add experts in different areas. We talked about energy, we talked about, solar and batteries. Different areas of our business that we can, if we can stack a little bit of extra return on top of these by being operational experts, that's going to be where we fit in. And we do think there's a barbell. We think it's going to only get more acute. And for us to keep getting the trust of our limited partners, we have to get better and better at being experts because there's going to be more competition if returns continue to be solid.

Nancy Lashine:

As they have been. Switching gears again, tell us a little bit who's had the greatest influence on you personally in your life?

Greg Lauze:

I'd say it's a couple of people. Certainly my mom and my dad. My mom really taught me patience and my dad taught me work ethic and they both taught me unconditional love. And we're so lucky. If you look at everything going on in the world today, you can't not recognize how critical that is in your upbringing and how fortunate I certainly feel from that. My business partners, Dean and Dave, like I said, just so fortunate to have learned so much from them throughout this process, but working for John Gray for a couple of years, it was a short period. But Nancy, I'd say it's like your favorite teacher or that one teacher in high school or college that just had a profound impact on your life. Even though it was short, I learned so much in a short period. How to be both excellent at what you do. I'll never be half of what he is, but I think learning what I thought was at least the right way to do it, a quiet intensity, a great person to be around. I just learned so much and I continue to watch all of his moves because I think he's one of the best.

Nancy Lashine:

Yes. Nobody can argue with that. If you could have dinner with anybody tomorrow night, dead or alive, who might that be?

Greg Lauze:

Well, I don't know if this would be my forever answer, and it's probably a little cliche, but I'm watching a lot of World War II, reading a lot of World War II. So I think ... This is, again, maybe more cliche, but like Winston Churchill and thinking how to battle adversity and just stay the course when times are tough. I think that whether it's personally or in business when things are tough, just having that fortitude is something I would love to hear about.

Nancy Lashine:

Yeah. He's such a great character. You'd have to have a good night's sleep the night before, I think, because there'd be a lot of alcohol and probably be a late night.

Greg Lauze:

Yeah. I wake up early and go to bed early, so we wouldn't probably cross over except for lunch.

Nancy Lashine:

I'm not sure he does lunch, but, okay. Any parting thoughts for us as we wind up here?

Greg Lauze:

I'd just say to you, Nancy, thank you. I've listened to a lot of your podcasts and one of the amazing things is, we talk about the Coffee Connectors and mentorship, you, it's amazing to me how many people consider you a mentor. I'm on that list. I think that, paying it forward and helping different people with their careers and businesses is truly special, and so thank you for everything that you've done for us.

Nancy Lashine:

Oh, that's so nice. Well, thank you for saying that. You just keep putting one foot forward, one foot in front of the other, and if I'm a mentor to anyone, it's just because I've been around a long time.

Greg Lauze:

Very good at it.

Nancy Lashine:

Thanks. Greg, you guys have built an amazing business. Really appreciate you coming on and talking about what you're doing and the industrial business, and I know that the future is even brighter than the past, so we're looking forward to it.

Greg Lauze:

Thanks so much, Nancy, I appreciate it.

Nancy Lashine:

I hope you enjoyed this episode of Real Estate Capital. Before you go, I have a quick favor to ask. We put a lot of thought and effort into this show and making sure we bring you insights from real estate leaders that you don't normally find in the mainstream media. So if you're enjoying this show, please remember to follow it on your favorite podcasting app so you never miss an episode. We'd also love for you to share it with others or give us a review on Apple Podcasts so others can find us. Thanks again for tuning in. For more information about our firm, please visit our website at parkmadisonpartners.com.