In this video, Rachel chats with Jeff Vertun, CBRE’s senior vice president of advisory & transaction services. Their discussion covers Jeff’s foray into commercial real estate, recent property price fluctuations, what to consider when selecting a warehouse location, and more.

Transcript below.

Jeff’s background

Rachel Andrea Go: Hi, Jeff. Thanks for joining us. To kick things off, can you just share a little bit about your background and how it led to where you are today?

Jeff Vertun: Yeah, sure thing. I’ve been representing executives of companies to align their real estate with their business plan for 15 years already, [then] brought my business to CBRE half that time ago. My business has become helping national and global companies and, by far, being in the leading, biggest company in the world, the most resources, the best people on the ground everywhere. It allows us to help executives make the most out of their real estate and use it as a fuel for growth. And [we] worked with a lot of eCommerce brands and companies over the years, and then that led us into a supply chain and a lot of 3PL business, how synergistic that business and ecosystem can be. 

And so working with entrepreneurs and VCs and synergistic partners that are in the space for all these years has led us to just being an advisor to executives of logistics and eCommerce type of companies to help them with all of their real estate around their country, help them bring in more customers, help them win their lease expirations and think about it from the business perspective, not just a real estate perspective.

Rachel Andrea Go: How did you first get into real estate?

Jeff Vertun: It was my first job out of college. I always liked that—I was an economics major, like, math and just strategy, that always made sense to me and I love that it’s physical, that you can—it was something that you can tangibly understand your impact, you can see, you walk into a customer’s warehouse with a bunch of TVs and a bunch—and you see how it flows, and this is the backbone of how product moves around the world and how people get their—all their things. 

I had a cold storage company that does yogurts and apples for Trader Joe’s and milk for Costco and it’s like, “That’s how we drink.” So, very interesting, very tangible, and you get to have kind of a big impact that way. Very entrepreneurial, this business as well. So, you’re having to—it’s not “rinse and repeat” ever. It’s a lot of using your experience and things that have worked for similar companies, but having to think and challenge the executives to think as well in different and new ways and staying ahead of trends.

Rachel Andrea Go: And how did you first get into the 3PL niche? Or, did you start off as already industrial kind of focused?

Jeff Vertun: It’s really—I worked with a lot of eCommerce brands first, right? And as the Amazon effect started taking over and as, you know, a decade ago, everyone started needing their delivery within two days and more and more eCommerce and return—it led to a rise in warehouse needs tremendously. Covid certainly spiked that, as is well documented, but way—well before that obviously. And it’s—so, it was synergism. All the executives of Revolve Clothing, who is a client of ours, like, they need to partner with three—they need—and so it was very—it made a lot of sense to start working with 3PL executives as well. And it’s led to us where we’re working with a brand who needs to open on the East Coast, say, and while you want to run the right real estate strategy of, “Do I go to which part of New Jersey or which part of Pennsylvania? And what’s the labor and what’s the transportation?” But maybe you also think about a 3PL out there because that’s a part of your strat, not just your own warehouse.  

And so it made a lot of sense to combine that thinking together and support that and it’s—we saw it started becoming so much more complicated and needing to have such a dynamic portfolio. And if you only have a couple warehouse’s on the East Coast, sometimes you have customers that need a West Coast. So, if we have a partner warehouse or 3PLs on the West Coast, we can help you say yes to a customer, get more revenue that way. And it really fits with our ethos, with our company, with the scale that we have. It allows us to connect a lot of good dots that way.

How CBRE secures better prices for eCommerce real estate

Rachel Andrea Go: Can you get into kind of more about the company? What’s your role in the company and how CBRE works?

Jeff Vertun: Sure, so…big company, I won’t get into every asset. It’s Fortune 120. It’s by far the biggest commercial real estate services company. They like to tell us to say we invest more in technology than our leading competitor makes in EBITDA. So, the scale is massive, and again, that’s why, as I work with companies that are all over the place, that really matters.

And in today’s market — and I’ll tell you more about CBRE — but in today’s market, like, a big trend is there’s a lot of companies overtook space and rents really spiked during Covid and so to win, like, your least negotiation when the release is up for renewal or to win, “How do I expand?” or “How do I—” having more scale to know which companies—there’s a lot of companies that are struggling and need to sublease their building and will pay—will take 50 cents on the dollar to get out now, or landlords that need to get out sooner.

And understanding that allows us to help a 3PL get better pricing to keep their existing customers and beat out their competitors. We say, “Hey, we know this big competitor is paying this. We can get you 20 cents less than them here.” You’re gonna win every time with the customer. So, that scale helps us a lot. The company—we do everything suit to nuts that can touch commercial real estate from hotels and resi—and retail. So, our clients—a brand might need to open a store, and we have a great retail team to help with that — office, sales, things of that. My team, we just represent companies, we just represent tenants, so we know never have a conflict of interest needing to put you in a CBRE-listed building or anything.

We are leaders in our CBRE Global Supply Chain Collective, and our team specifically has pioneered this strong ecosystem where we have all these partners, right? And we go—we do much more than transact real estate. So, we have a lot of partnerships and we drive that to our customers. We help—”Hey, you know, this three PL just won a couple new eCommerce brands because they’re using this great reverse logistics tool that’s saving everybody money and helping them attract. Hey, 3PLs at our client, talk to these guys.” This is a way you can be more competitive, right? And so, thinking about it that way and doing things like that is really at the core of what we do.

The growing tenant’s market

Rachel Andrea Go: Wonderful. So, what are some of the most interesting developments in 3PL real estate in 2023?

Jeff Vertun: ‘23 was more about companies right sizing and the market getting that right. Covid years — and I don’t know how much the audience knows about the real estate part of what happened — but warehouses, industrial real estate spiked like never before, right? Everybody — the supply chain issues, more and more eCommerce, everyone working remotely and buying their stuff online, right — it led to an insane demand for more warehouses. And the supply chain issues made companies go from what they called sort of “just in time” supply chain to more of like a “just in case.” And so, they had to stock up on product because they didn’t want to run out of stuff to sell and they didn’t know if the port would be backed up much longer kind of things. 

And so, it led to a lot of companies—more companies needing space and warehouses. And so that led to, in my world of representing companies, you’d go—need a 400,000 warehouse in Savannah, and there was two options with 15 companies vying for it. And so landlords said—they’d, like, pick a number as high as they wanted and somebody would pay it because it was that or go out of business. So that was really—it led to a huge spike in the cost of that. 

But what happened now is, as we got to ‘23 and things leveled out, everyone started, you know, saying, “Hey, let’s take more inventory of what we actually have,” right? Obviously, interest rate, environment, and all that. So, it led to the real estate environment—we’re not seeing, like, in the data tremendous, like, “Wow, it went way down.” Certainly not going up the same way. And that’s where you need to pick your spots and know the intimate knowledge right? Where hey — I won’t call out a specific brand — but a brand or a company or a 3PL that kind of took space to get there — they’re not going to advertise to the world, “Hey, we need 50—you know, we’ll lease it to you or sublease it to you for 50 cents on the dollar because we just kind of need to make some money and get out of this situation. We don’t need anymore.” 

But we have—that’s the trend that’s happening now, right, is—there was an overtaking of space, there was an overbuild of warehouses. I think there’s—the demand is starting to come back and there’s—because of the high interest rates, we’re not seeing much more development, so it will level out. But there’s a window now where, again, I think you can get a little bit cheaper rates than what some competitors may have gotten in the last few years. And that in a 3PL business margin is everything. And so that will allow you to create—to beat customers. We have a lot of solutions-oriented ways we help them do that and compare to their competitors. So that’s, in my mind, that’s one of the big trends happening right now.

Rachel Andrea Go: How do you see this trend playing out throughout the rest of 2024?

Jeff Vertun: I think the first half of the year, it’s a tenant’s market and there’s way more and we’re—it’s nice because we were getting pushed around during Covid, but now it’s our turn. I do think that the back half of the year, it’ll even add a little more. I think that there’s a lot of good optimism about the world right? You know, versus where we were. And it’s allowing—we’re hearing more and more customer opportunities say, “Hey, we’re ready to get going and we want to be up this summer so we’re ready for the next holidays and all this.” So, I think that there’s a good—the first six months of the year is a good time to make deals and we’re seeing that in real time.

And I think there’s still companies trying to offload space and right size. So, there’s still both happening now, where there’s now more companies saying, “Okay, let’s go bite more and let’s go win this customer opportunity,” or “Let’s go—” and there’s still companies that are [saying], “Hey, I just kind of want to get out and consolidate.” So, again, that’s the trend is, being in the middle of where you can help the guys that need to get out find the right deal to offset and help the guys looking to grow or renew their lease still get better margin.

Warehouse selection requires lots of data

Rachel Andrea Go: So, you’ve discussed a lot about choosing the right location and getting the right, you know, deals and all of that. What factors should brands consider when choosing their warehouse locations?

Jeff Vertun: Oh man, good question. We have a whole—this is a big part of what we do, right? I think we talk a lot about the customer and the impact and how to help the 3PL use real estate for that because that’s what the CEO of a 3PL—that drives the revenue. But certainly, at our core, location intelligence is what we do better than anybody else.

We have all sorts of resources that—you know, my job is to button up for one CEO that we do across their whole portfolio in real time. So we’re helping you in different markets all at the same—making it really efficient. But it’s a lot. It depends on what’s the use. So, start with the operation: Where—what’s the inbound? What’s the outbound? What’s the transportation? Where is this coming? Where is this going? Is this a one-site solution? Is this a West and East Coast solution? 

And our job is, at the beginning, is to not tell you what to do. Our job is to be curious and ask questions and bring clarity through an analysis of qualitative and qualitative—the impact on your business and your customer of what different solutions will be so that you have full conviction that whatever we choose is the right choice. And meanwhile, your customers don’t see it as, “They’re just sticking me here,” but “Wow, look at the efforts they’re going to. Look at the RFP response.” 

So, we share and let our 3PL clients use our location intelligence to do that. You factor in labor analytics, which we have a whole department for; you factor in government incentives opportunities; how many jobs are you creating; how many—right? That could change the impact and that—we have a lot of data on which states are offering what for when and what recently happened. We have more of that than anybody else. Transportation’s always going to be a big one, right? And so you do the math. And so there’s a lot of, “Where’s inbound, outbound? What do we need to be close to?” 

We have this incredible mapping technology that will help show you the competitors and who’s paying what around you, all the demographic things you need to know. And so it’s—real estate is always a part of it, and the cost and where those uniques—you know, off-market or cheap solutions are. And that’s one of our rows that we weight a certain way with labor, with transportation, with incentives from there.

Rachel Andrea Go: What’s the most complex customer case that you’ve had to solve? And how did that go?

Jeff Vertun: I think what’s—from a complex—what comes to my mind is a 3PL we work with that was more of an East Coast and they had a kind of, like, out-of-place, northwest location for their West [Coast operations]. And, again, we’re not, like, “Hey, open a facility here and there.” But we’re communicating, “What’s the sale? What are you hearing? Why are you not winning customers what are you—” and they kept getting, “You don’t have the right West Coast solution. It doesn’t work for us.”

And so they started hearing that more and more. And you want to open a West Coast [location] when you have, like, an anchor customer; you want to margin, so we negotiate the deals in ways that you can phase in. But they were like, “We know we need to be on the West [Coast] — better in the West. We’re hearing it enough, it’s part of our business plan. We got it. Open it at the right time and the right way, but we need a better west location. Where do we go? I don’t even know. What’s imp—we don’t have the customer.” 

So, I think what makes things like that complex is when there’s—you don’t have what the customer data is. You don’t have, “What are we solving for?” And you’re sort of—you’re needing to make some assumptions and really get in with the business of, like, “Let’s take some averages of what we expect our customers to need. So when we’re comparing Salt Lake City and Reno and Vegas and Phoenix or whatever, right? And we’re lining all of them up with the real estate costs, and, you know, all the things that I talked about — government incentive, labor, transportation impacts — what’s—we start to then make models, right? Where we take on our mapping software: “Here’s your other locations. And then, if we open in Salt Lake, here’s what your transportation lanes look like, here’s how this changes, here’s where this would feed. Now, let’s run some volume and, okay.”

And so I think making—having to make some of the assumptions is what makes it more complex because you run multiple scenarios with them. But that’s something that happens and that’s something where they need to be, maybe—what we ended up doing is, you line up a few of those, mark where you sort of, like, “Okay, maybe Salt Lake’s number one and Vegas is two based on these factors.” And we stay in front, ready to go. [We] say, “Hey, these are the buildings we would go to,” and then we stay with the customers [and] say, “Whenever we find the right customer, let’s plug them into these scenarios.” And then we’re to choose ready, ready to go fast and move quick. 

So as—yeah, as you said that, I think that’s what makes it more complex when there’s imperfect in, you know, data of what we’re solving for, and so you solve for multiple solutions and you prepare yourselves to be ready to move quick.

Equilibrating the power dynamic

Rachel Andrea Go: Looking ahead into the future, what do you think is going to make the biggest impact in 3PL commercial real estate in the next five or ten years?

Jeff Vertun: Oh man, they’d pay me a lot if I’m right about this. I think that there’s—the thing I see a lot is, it’s a lot of a push-pull with the customers and the three PLS where—what makes the real estate hard is when customers have more leverage and they’re like, “Hey, we have all these partners, 3PLs we could work with,” and the customer wants to do kind of shorter-term contracts. And I think the power dynamic of who can push for a little more term—when you’re allowed to do a little more of a term on your lease, you can get much better economics, and both the customer and the 3PL are able to win that way, right? 

In general, a landlord — they can amortize things over a longer period of time, so the longer the lease, the more they can do things with that asset. And so that’s a trend that I’ve seen where I think customers are taking a little more power back right now while there is more availability. And I don’t know how that shakes out, but I know that that’s a big impact, where my 3PLs say, “Hey, we have a 12-month opportunity,” and that changes what our dynamics are, what we’re looking to help them try and win that customer with versus you can do a three-year contract and we could really beat out competitors and create something really valuable here. 

So, I think that’s an impact. I mean, the space is so fragmented. There’s so much innovation that’s still happening and trying to happen in the space. There’s some great marketplaces that’s trying to help create efficiencies, many of which we have direct partnerships with. So, what I hope to see is more efficiency, more collaboration, more what we try and connect dots for of, “Hey, my LA 3PL has a customer who needs 12 months’ overflow in Savannah. We don’t have that space there. Let’s not open a building. Let’s put it into someone who’s sitting there with 100,000 extra feet that they’re not using and let’s all work together to create more efficiency and compete better against some of the giants that have more leverage that way.”

And I think there’s some technologies and some tools and groups like ours and some of our partners that are trying to bring more of that to the space. You know, costs are—while we can negotiate better costs now than we did the last few years, it’s still—the baseline is much higher than it was five years ago. And the reality of facing a lease expiration when you’re—and it’s twice as expensive, give or take some negotiation, it’s changed the dynamics a lot. It’s changed what people can do, and I think more collaboration and more, like, solutions and tools to do that are happening now and working now. And we’re trying to advocate for that across our industry.

Rachel Andrea Go: Are there any states or cities that you kind of have your eye on as a potential up and coming, you know, in the next few years? [Like,] “This is going to be a really good center for eCommerce operations or logistics”?

Jeff Vertun: Yeah, I mean, I think everyone—it’s not a secret that the Southeast is the hottest rising market where people—it’s way cheaper than the Northeast, it’s—but I think that, like, it’s not—there’s not, like, you go to Savannah [where] there’s only so many opp—it’s not a big market, you know, that’s a top market there. Nor, you know, Virginia, Port of Virginia is a small real estate market. And so there’s only so much growth that can happen in that market, you know?

Southern California is always the biggest and strongest. We’re seeing more and more growth in Texas. I think that the Houston-DFW market is certainly one that’s picking up a lot, and then near shore into Mexico is helping to drive a lot of that as well. So, maybe I would say Texas is up there for sure. [The] Midwest has been good at, like—[the] Ohio area has been offering some good incentives to companies to do things there as well.

And then, yeah, and then I think some of those West Coast markets that I’ve talked about — not So Cal — but they’ve all been doing well, right? I think they’re gonna continue to grow though. And it’s the Salt Lakes and the Vegases of the world where it’s a little bit cheaper, where there was a lot more demographic migration, too, through Covid as well. I’d say those things.