Interview with Sam Sukut and Chris Nelson
1. How did you get into commercial real estate? How did your first few jobs in CRE lead you to specialize in the industrial sales and leasing side?
Sam: We actually both come from families with a real estate background which encouraged us to pursue careers in the industry. My family owned a construction business that led them into the industrial space, so those were the properties I grew up around and was most familiar with. I studied real estate at USD and wanted to get into the investment sales side. After college, I joined Stream Realty, where I met Chris. Together we went to Inland Pacific and started really honing in on our specialty. Industrial had a lot of momentum and was a sound investment choice.
Chris: So, the backend of that story is the same for me, but for the first half, my father was a general contractor and architect working on various projects, including commercial assets. That experience led me to want to be in real estate. I studied finance and marketing in college, which worked out well because when Sam and I met, we brought different skill sets, creating a good synergy. We’ve continued to build our expertise and business, and now here we are.
2. Why did the two of you and your fellow team members decide to make the move to Matthews? How did Matthews stand out compared to other companies in the industry?
Sam: For us, Matthews™ national growth was a big draw. Leadership expressed they really wanted to expand their industrial product type services in the Southern California region, specifically San Diego. We saw the opportunity to be the first industrial group to really push that agenda forward in the market. On top of that, we really like the leadership team here, we felt comfortable with their goals for the company and us, and the support here has been super helpful already in putting us in a position to enhance our business.
Chris: From the standpoint of what traditionally successful brokerage teams look like in Southern California, typically, they are using older, antiquated systems that work but don’t change much, and those systems are passed down from generation to generation. We wanted to change that, to be disruptive, which Matthews™ helps us do. There’s a good opportunity to take market share by using the company’s support and resources. Leading a charge within the market, we believe Matthews™ is the right engine to get behind with the horsepower to achieve goals.
3. Are there any unique challenges that industrial leasing presents? Why is working with a specialist in this area so important?
Both: Southern California industrial is so valuable, potentially the most valuable in the world. The vacancy rates are really low, so from both a buyer and tenant perspective, it’s important you see all the available opportunities. The majority of our transactions happen off-market, which makes it difficult for buyers to have an accurate idea of all their options without an agent giving them access to pre-market information, etc.
Overall, having a broker that knows how certain tenants are performing in different markets can explain the certain headaches you’ll face with other properties, and setting appropriate expectations will maximize returns, which is the ultimate goal.
In addition to that, because the market is so valuable, it has a relatively small community of players, so having an agent ingrained in that community is key when investors are looking for spaces or buyers.
4. How is the San Diego and greater metro real estate market performing, particularly in the industrial sector?
Both: Historically San Diego was thought of as a secondary market to LA and Orange County. However, through the last cycle, institutional activity picked up. As a result, we’ve seen a lot more investment activity, a lot more rent growth, in addition to an influx of companies moving to the area. Suppose you look at the biotech sector, which grew tremendously during Covid-19, as well as defense and technology, which then spurred the growth of industries connected to those sectors. Obviously, we’ve seen a downtick in development, and some of those sectors are in a downturn, but what I would say is a value to San Diego real estate is that over 97% of the land is built out, and it is physically constrained by mountain range so there isn’t much opportunity for new supply. So once the market achieves equilibrium occupancy, and the space built during growth periods is filled, there’s not much threat of new supply. And with where construction costs are, investors have a good opportunity to buy below replacement cost, which, as a result, keeps investors in a safe place.
5. What are your market predictions for the rest of 2023 as we face another possible interest rate hike and slowing consumer spending?
Sam: When it comes to transaction volume, it’s going to stay lower. When it comes to cap rates, I’m not sure if we’ll ever reach the point where we’re back to positive leverage until rates go down. Because the market is so strong, I don’t see people selling their properties for much less than what they are currently at. Most properties have fair debt on them, and the rent growth has pushed them to a point where they don’t want to get rid of them. The risk of vacancy increasing is low even though the overall economy is down, especially for smaller units. The local economy is still strong, so I think price adjustments are unlikely until interest rates fall.
Chris: We’re seeing an inverted yield curve “uninvert,” which is generally a pre-recessionary sign. As a micro-market, San Diego isn’t having as much pain, but larger markets like the Inland Empire are having supply come online that will be delivered vacant. So the market fundamentals in a market like that will feel a bit more pain, and I think that will force people to drop lease rates and sales prices. But for San Diego, because a lot of the businesses are local, they are performing well, which is helping shield the market a bit. Rent growth did help make up for the interest rate increase. The price per foot has been propped up, and those who couldn’t buy during the commercial real estate boom are now able to get into the space. That pent-up demand in certain sectors is helping San Diego too. In terms of what I would recommend for investors, if you have a good property with good debt, sit tight and enjoy cash flow but consider selling if the property is going vacant. There are also a lot of properties that got upsold, so maybe I’d encourage owners to explore if there is a development opportunity. Can you unlock value during the lull in the market?
6. What advice do you give your fellow teammates during challenging deals? What advice would you give a new broker entering this market?
Chris: Be patient! Understand when you first enter the business, there’s a rush to make deals, but you want to make sure the deals you’re putting clients into are worthwhile and are going to build your business. It’s easier to work on 20 transactions with one client than working with 20 clients on one transaction, so focus on quality over quantity. Another thing to remember is time provides perspective. A deal that takes 2 to 3 years to close and seems like forever doesn’t seem that long once you spend some time in the industry. You just need to get over that hump and be ok being patient.
Sam: In this market, there’s no instant gratification like we’ve seen in the past, where everyone is looking for a deal, and almost every deal is a good deal. Right now, it’s all about building relationships with active investors. They may not be active now but will be in the future. Learn the craft, the market, and those aspects of brokerages others don’t take the time to research. Although deals may not come at first, if you’re diligent, the deals will start falling into your lap.
7. What is your number one strategy when trying to build a relationship with a potential client?
Both: We’ve built our business on the foundation of always bringing our clients valuable information. We practice “smart brokerage.” We learn the market inside and out, the zoning laws, tenant preferences, etc. The more value you bring the more likely people are to listen and then when the opportunity comes up, we can be who they first think of because we’ve provided them with insight into the past and they trust us.
I think you have to look at the concept of one percent better every day, providing the little things that make the difference. In every call, if you can make that property just one percent more valuable, it only takes so many calls before you become a necessity for the investor.
8. What is your favorite thing about being a broker? Has it changed throughout your career?
Sam: I love working with people, whether that be my teammate or clients. Real estate is a very conversational and relationship-driven career which I think fits me and is something I look forward to each day. I don’t think that’s changed as I’ve moved throughout my career, I think you start to shift what the most important thing to come out of your career is, but I’ve always enjoyed the people part.
Chris: I love the problem-solving aspect of it; every deal is a Rubix cube which makes it fun and challenging. I enjoy looking at all the different angles you can look at a transaction from and finding the value for clients to then create solutions. I’d be happy if I could sit and solve complicated real estate problems all day.
9. Last thing, what’s your favorite cold call line?
Both: No two calls are the same, but we do like to call with “bait.” Whether that’s a potential tenant we think would be interested in the space or there’s a building that would be a good addition to a portfolio. Once again, it’s all about adding value, and that’s what we aim to do every call.
