The CEO of a U.S. firm specializing in industrial development shares his insights on the industry.
PANATTONI DEVELOPMENT Company CEO Adon Panattoni oversees all aspects of daily operations and development for the company, which was founded by his father, Carl Panattoni, in 1986 and is now based in Newport Beach, California. He also serves on the company’s board of directors and its executive and investment committees. Panattoni is a member of NAIOP’s Inland Empire Chapter as well as its national E-commerce Forum.
Development: Describe the size and scope of your company.
Panattoni: We are three independently operated development companies: one in the U.S., one in Canada and one in Europe. We share services and ultimately report up to the Panattoni family. I run Panattoni Development in the U.S., where we have 14 physical offices and operate in 25 markets. We start over $1 billion of new real estate projects a year, which is about 4 to 5 million square feet of space. These deals take us about three to four years to complete so, in effect, we are actively developing $3 billion in real estate at any one time. We do some office and a little retail development, but from a dollar standpoint about 85 percent of our work is industrial.
Development: What is your primary role at the company?
Panattoni: New business development is where I spend most of my time. Everything else we do in the company supports that function or supports risk management.
Development: What qualities do you look for when hiring senior staff?
Panattoni: The quality most important to me is integrity, high integrity. Further, I want people working with me who are actually excited about working hard and about being productive. Beyond that, they also have to be smart. But I have found that having integrity and working hard will trump what is perceived as intelligence every time. Yes, you have to be able to work with people and have empathy for those around you, but for me, those qualities fall under integrity.
Development: What economic or market indicators do you follow on a regular basis?
Panattoni: I try to keep it simple because you can overcomplicate things and there are a lot of things I cannot control. I will break it into two components: a macro view and then a micro (or industry-specific) view. I look at U.S. GDP forecasts and job growth. Then I look hard at industry-specific leasing demand: national leasing demand, global leasing demand, specific market leasing demand and specific submarket leasing demand. I don’t just look at what has been leasing; I want to know what people are thinking about leasing. This information is available because brokers today have a very good handle on deals in the market.
Development:Demand for mammoth fulfillment centers has helped the industrial sector thrive for the past few years. Will this demand dry up? If so, what will come next?
Panattoni: I don’t see it drying up. There is a long way to go, and I’m not the only person saying that. The industry still has a lot of running room to maximize the productivity and efficiency of these fulfillment centers. This doesn’t just apply to the big names that we all know. It includes all user groups, all tenants across the economic spectrum. These groups are still trying to figure out how to do e-commerce and how to best deliver products to the end user. There is still a lot of room to grow.
Development: What do you see as the next industrial wave, and how are you preparing your company to address it?
Panattoni: I do not have a clear answer for this, because I think we have a long way to go with the current wave. I think there will be nuances to this wave that haven’t yet come up. The wave won’t be exactly the same two years from now as it is today, but what will be happening will still be part of the current wave. Everything else is minor surface disturbance compared to this wave we are in right now, as companies redo their entire fulfillment structures, especially to service the new e-commerce economy.
Development: When leases expire in first-generation fulfillment centers, do you believe tenants will renew in place or will those buildings become obsolete?
Panattoni: Some will renew in place and some buildings will become obsolete. There are two components to these fulfillment centers: one of them is inside the fulfillment center itself, which does not look like the traditional warehouse. That portion will become obsolete and will continue to evolve. Operations within these fulfillment centers will face some dramatic changes.
But the exterior bones of the fulfillment centers will not become obsolete. The exteriors of these fulfillment centers may not be as state-of-the-art in the future as they are considered today, but most of them are designed from the outside to be well functioning, large distribution warehouse/fulfillment center buildings with all the circulation space, trailer drops, truck docks, access — everything you need for what you would consider to be part of a very good industrial building.
Development: How has the industry changed during your career?
Panattoni: In one word, sophistication. There is greater sophistication of the industry overall. The brokerage community and the investment community are extremely sophisticated today. Their information is accurate, detailed, comprehensive, very liquid and fluid, and available to everyone in the industry.
The big difference today is that it is much harder to keep a secret. There are individual secrets here and there, but before it was the norm that the developer knew something that nobody else knew. Now everyone knows everything. We don’t get to make money off of being secret keepers like we used to. You can blame a lot of that on how sophisticated the brokerage companies have become. They are becoming larger, more comprehensive and centrally focused, and information is being shared across multiple markets at the same time. Brokers have forced everyone else to become better at what they do.
Development: What is the most valuable lesson you’ve learned over the course of your career?
Panattoni: You have to jump in head first into every aspect of this business and be in the middle of it and trust your gut. The one other thing I have learned is that who you work with really matters. You have to enjoy the people you work with, or work becomes very difficult.