Right Place Right Time - The art of locating industrial sites near both labor and the supply chain

**The Reshoring Revolution: A Deep Dive into Current Manufacturing Trends and Challenges**

In recent years, the manufacturing landscape in the United States has undergone a significant transformation. What was once seen as a decline due to offshoring is now being redefined by a surge in reshoring efforts, driven by lessons learned during the COVID-19 pandemic and shifting global economic dynamics.

**Labor Shortages and Site Selection Challenges**

The conversation highlights the critical role of labor availability in determining where companies choose to locate their manufacturing facilities. Treehouse Foods, a prominent food manufacturer, shared insights into their site selection process. They emphasized that while cheaper labor in peripheral locations might seem attractive, the risks associated with supply chain disruptions often make proximity to major markets more appealing.

**Environmental and Infrastructure Considerations**

The discussion also delved into the environmental aspects of manufacturing, particularly focusing on water usage and availability. As companies increasingly adopt sustainability goals, they must navigate challenges related to securing necessary utilities while minimizing their ecological footprint.

**Impact of the Pandemic on Supply Chains**

The pandemic's impact on supply chains was a recurring theme. Companies like Treehouse Foods faced unprecedented challenges in maintaining production schedules and fulfilling orders. This led to strategies such as increasing inventory levels to mitigate risks, even if it meant holding onto excess stock temporarily.

**Future Predictions and Expert Opinions**

Looking ahead, experts predict a continued shift towards localized manufacturing. The globalization model is being reconsidered, with companies opting for regional production networks to enhance resilience against global disruptions. This trend is expected to gain momentum as more industries prioritize supply chain stability over cost-cutting measures tied to offshoring.

**Conclusion: Adapting to the New Manufacturing Landscape**

As the industry evolves, manufacturers must navigate a complex web of challenges and opportunities. The focus will increasingly be on sustainable practices, skilled labor development, and innovative site selection strategies. Companies that adapt swiftly to these changes are poised to thrive in this new era of manufacturing.

In summary, the manufacturing sector is at an inflection point, with reshoring, sustainability, and workforce development emerging as key themes for future success.

"WEBVTTKind: captionsLanguage: endriven by the effects of pandemic related supply chain issues along with everything from macroeconomic forces to basic consumer choices and more the industrial sector is going strong and the US is on a path to a manufacturing Revival on this episode we traveled out to Boise Idaho site of the industrial Asset Management council's fall Forum to meet three real estate leaders attending the conference we found found out what's powering the asset class they focus on manufacturing the moment in time we're in now the velocity and volume of manufacturing projects is 10 or more fold compared to the average over the last 20 years that's AJ Magner a vice chair at CBRE who runs a global advisory team that helps manufacturing and distribution organizations manage their real estate portfolios we've done everything from tanks to to tofu it's a nice stretch of stuff we get to work on that's Seth marale senior managing director for CB's America's Consulting platform Seth specializes in site selection and location incentives and to provide insights from an occupier perspective we welcome a leader for a major manufacturer David valali director of real estate for Treehouse Foods it is so specialized right that you have to have the power you have to have the infrastructure and everything else that that is just a much more in-depth process and struggle to figure out David oversees a nationwide network of factories distribution centers offices and more for this multi-billion dollar private label food producer Treehouse makes products that hit the market under a variety of well-known Brands likely including some of what you put on the kitchen table or stock in your pantry each week coming up morning coffee in Boise in a conversation about a specialty manufacturer the nuances of this essential asset class and all the ingredients of a big real estate story I'm Spencer Ley and that's right now on the weekly take welcome to the weekly take and this week we are in beautiful Boise Idaho with David verelli director of real estate Treehouse Foods David thanks for joining the show thank you very much then we have AJ Magner AJ thanks for joining thanks Spencer and then we have Seth marale who uh did the correct thing this morning by bringing me iced coffee thank you Seth trying to score points earlier you see that we'll be nice to Seth today so to start off the show today why don't we just tell everybody who you are and what you do David why don't you tell us that Treehouse Foods is one of the largest private band brand food manufacturers so roughly about 3.5 billion in sales we operate in 17 categories like crackers cookies pretzels coffee all those things and then we make them for the large companies so you don't see our name on anything but we work with all the the large retailers great so most important question do you have any particular food item that's your favorite so I do uh the Trader Joe's peanut butter cups okay is one of ours and so yeah that would be it so we don't have much more to ask here today did you bring in show's over so David I know all of us are running out to Trader Joe's now to buy some peanut butter cups I certainly am on my way back to my hotel but David let's pull the lens out just a little bit where are some of your facilities located and what are some of your major considerations to uh to pick them well so Treehouse as a company is basically grown through acquisition we haven't had a lot of organic growth that we basically bought companies inherited locations where they were um and so that's a little bit different of a scenario just in terms of of how we've established ourselves so in total we have 93 sites across North America uh we have 26 manufacturing facilities um we have some warehouses that are associated with those and so those would be locations but primarily like the the large mixing centers distribution centers offices all those are going to be leased everything else plants and the plant warehouses are going to be owned locations M so one of the major differences between manufacturing and a just a big pal box Warehouse Center is the equipment that's in there which is really unique really expensive tell us a little bit about that yeah it is right so so I mean I think any of our production facilities I mean there's extensive Capital that has to go into those like the infrastructure within the building as well as the equipment itself and so being sure that the company is able to spread that cost over time right it makes more sense to own it than have to capitalize it on a 5-year lease a 10year lease uh and the cost of redeploying that equipment and moving it that hinders you to stay where you are right that it's it's going to be a big um cost and incremental spend to move locations from one site to another and I've also seen but this is particularly true in the Auto industry so I'm just going to ask your opinion in the food manufacturing industry that very often this equipment is so unique that it's cheaper to start from scratch and build a new plant with new equipment than it is to try to repurpose existing equipment is that true I would say to some instances yeah it is right and and it's so specialized um like we have some equipment at some our facilities that's so old that we actually don't think we could move it right and so it either stays where it is or we have to get it new so yeah it is somewhat exceptional that way and the thought is a with that cost of capital as well as what the cost would be to try to move those plants elsewhere those need to be owned so we need to have the stability of owning those locations the mixing centers uh so most or some of the warehouse locations as well as offices those are going to be leased facilities simply so we have flexibility within our Network let me turn to you for a moment Seth on that same question in terms of going to a place to pick a site and obviously you've got the cost of land you've got the availability of labor but you have a lot of these older manufacturing are areas that their better days economically were yesterday how much are they attractive versus new places that might have a deeper labor source I think like everything else it's a matter of balance right the further outside of a Major Market you go the more issues you've got with labor acquisition it's be harder for you to get the infrastructure you need it's obviously going to be cheaper and there's going to be more incentives there but you got to balance can we really run our operation here for as cheap as it might be I think most of the companies we're working with tend to lean towards less risk and pay more money but that's just uh operating profile for today you know that may change the hard part is once a certain area of a city or a certain area of the country gets like a boost somebody big goes in there everybody else follows them so hard to predict where that might be but I think it's a good reason why sometimes States go big on economic incentives for one particular project because you win that one big one and everyone else says well they went there there must be something going on there that's right let's go there as well so all a balancing act so a J let's just pull the lens back just a little bit more um the manufacturing in the United States it peaked and then it fell hard and now it's coming back I think that's a fair way to put it about how manufacturing has a lot of it was off short but now we're talking because of post pandemic it coming back tell us the big picture of where manufacturing is today and where you see it going yeah from a real estate lens I'd say let's look at it over the last 20 years the moment in time we're in now the velocity and volume of manufacturing projects is 10 or more fold compared to the average over the last 20 years there's a high demand for manufacturing projects the uniqueness of the manufacturing plant itself as an asset class is much more like the traditional single family residential market right it's owner occupied so there's not really uh a big thirst for international capital and institutional Capital to own a broth Manufacturing facility right there's a niche of investors that will play in that space But it's really an owner occupied Market from a a real estate asset class standpoint um for the reasons that we you know have discussed today in terms of the stickiness of infrastructure the stickiness of equipment the specialization of Labor markets um and just the comfort of owning and having a 100% control of the fee of that site that's how the asset class plays in the overall portfolio mix for most organizations AJ just tell us how the manufacturing practice somehow differs from our general Logistics practice uh it couldn't be more different right uh Logistics the variables you're dealing with are typically by Nature movement and pro of product through the building and to the customer right to the building through the building to the customer on the manufacturing side you're often dealing with bulk inbound of raw materials where value is getting added to that bulk uh inbound raw material whether it be rock or grain or something else and then you got to figure out how to get it to the plant to the Distribution Center uh in the most efficient way the customers and then additionally Seth will tell you the variables that are going into the site selection decision on a manufacturing are much different also because it's much more heavily weighted toward site infrastructure incentives labor labor labor labor um and also a lot of environmental issues and environmental conditions I did a site selection for a potato chip manufacturing group group once we were looking in the west half of the US and a potato chick bag at a certain elevation will pop so we had to be on the right side of the Rockies we found this out about Midway through so we wasted a lot of time uh but you have to be on the right side of the Rockies to get potato chips to La Market basically so um there's a lot of interesting things that go into manufacturing site selection that really make my job fun that's pretty cool I should also note that we are in Boise so we are contractually obligated to mention the word potato at least we' got we've got one or two down Ching done so Seth labor site selection local incentives there's aund directions we can go here but where do you start the conversation with somebody looking to put a plant in the United States yeah I mean it's difficult because it depends on what they're doing we've done everything from tanks to tofu it's a nice stretch of stuff we get to work on um what I would say is typically labor as AJ mentioned tends to be one of the most important factors we're looking at frankly if you don't have enough people to work at the facility doesn't make any difference how awesome it is nobody works there it doesn't work so we tend to look at Labor a lot you could say the same thing with the distribution center but the labor is usually different it's a skilled trade that you T typically need so whether that's a tool and die operator a CNC manufacturer electrical engineer whatever it may be those are a little bit harder to find for me the other big one that I think not a lot of people talk about but I think it's going to be very very important here real soon is the infrastructure requirements AJ alluded to it earlier especially with food manufacturing typically that's a lot of water and as you guys probably know in the news water is becoming harder and harder to come by so that's going to be interesting to see how that plays out as we go a little bit forward in the future so I think environmental resiliency is also an issue that is becoming a Topline topic when we're doing s selection in terms of not just the earthquake hurricane Mass impact of this Mass event but sort of the Baseline that we're seeing you know the hottest summer of record on Earth this summer and how that's impa in the inside the box and how it's impacting labor in terms of executing their job in a in a plant it matters the other thing that's kind of interesting too is a manufacturing plan at least from my perspective tends to have a longer life so the decisions you're making are like 30 plus year decisions so maybe temperature is on the borderline of whether or not you need to take it into consideration today but 30 years from now it's a lot different same could go with climate change and impact on being near the water I mean there's a variety of different issues that occupiers when they're building a new plan have to take into consideration so uh AJ turning to you tell us a little bit more about your practice uh is it Global tell us the types of companies you represent and some of the unique issues you might have by industry starting with food sure yeah so we repres I love the tofu to tanks thing Seth so not we're not dealing with tofu or tanks specifically but uh we have a wide spectrum of manufacturing organizations that we support so we've got building materials uh electrical components uh consumer products food manufacturing and our practice is Prim adding value by Outsourcing the corporate real estate activities that historically when these organizations had L large internal real estate organizations um they self-performed right and over time the pendulum is swung and instead of having multiple service providers that are not necessarily communicating or talking to each other customarily our team's bringing together all these experts the local market experts the local brokerage experts and really building a business case for an individual site based on the company's business case of needing a production capacity that's really what we're doing so that's at the front end yeah but then once the facility is built we're also providing Services there is that correct absolutely yeah in the industrial space one element that uh We've unfortunately had to focus on from an occupier perspective is the uh large jumps in rents in the market and we've had to really become very cinct communicators when it comes to getting the SE sues attention on what's going to happen to their portfolio holistically as it's impacted by what's happening in the market so if David by way of example has 50 lease sites with all the lease end dates approaching in the next seven years we're having to build a portfolio view of all the fair market value assessments that's going on in the market where you are today where that book rent or Gap rent is today and what that lift means from an Enterprise Value perspective to the organization when you take the multiple of what that organization's trading at and what that means to the company overall so that's what you need to do to get the SE Su attention and otherwise you're just going to take a beating every time you have a a new lease renewal coming up and they're like why is my rent doubling in the Inland Empire and it's like well we told you this was happening holistically so um so yeah it it takes a little bit uh higher view on the portfolio to get the attention of the seite I might add I think so the rent is obvious right that's something that we're all dealing with and and it it's certainly been uh problem in terms of just renewing sites but I think the other is like even components from construction the lead time on those the timing I mean it used to be that that if someone came to you and they said I need site ready in three months yeah we can do that and all of a sudden that timeline is sh shifted dramatically as well so you really have to constantly give information to be sure they understand what the market is with absolutely yeah rents timing and everything else we have a terrific colleague of ours his name is James Breeze he runs our Industrial Research on the landlord side and I just pulled up one of his slides because I think it's important that people understand the entire supply chain what these costs are and I'm just going to read a few figures from James on what percentage of your cost is rent and so this is the breakdown of logistics cost according to James Brees and so Transportation costs 45 to 70% think about that 45 to 70% fixed facility costs 3 to 6% yes your rent may be going up at these stratospheric levels but if you put that facility in a more strategic spot you might be saving yourself some money on trucking and other costs Seth what's your point of view let me politely disagree so for the manufacturing component of it yeah there's a transportation side of it but if you can't manufacture anything Transportation doesn't matter anymore you don't have any product to deliver what does it matter so if you're talking about distribution centers sure that Transportation cost really relevant talking about a manufacturing facility you keeping that facility up and running is critical it's the only thing you really care about which is why when we saw Co the equation of how much risk do we have in our system to keep things running and the manufacturing system totally got rebalanced and now you're seeing that take effect here as we see a lot of reshoring back into the US someone took a really big wrench and threw it into our machine that was working pretty well and now we're having to figure out how the new machine's going to work the other thing I would add to cth comment Spencer is uh if you look at those cost categories you just rattled off those are all variable cost if I make one half less whatever widgets I'm making my transportation's likely going to go down proportionately half rough or plus or minus however real estate is illiquid long-term commitments and immobile so I can't take it and move it I can't get out of it very easy and I'm usually signing a lease for at least 5 years sometimes 10 15 20 so the compounding nature of that commitment that's going in front of the board whereas you got spot rates on freight week to week month to month as opposed to to going to an organization and saying hey I own $150 million lease commitment it just raises the profile in the organization when you're going through the corporate Loa and or level of authority sorry level of authority and approval process I think you brought up a great point and and David I'd like your point of view on this because when we're dealing with real estate of different types so the difference between say a Suburban office building and a medical office building is they may look identical from the outside but the amount of redundant power the amount of redundant air other things make a medical office building a lot more expensive a lot more risky to run than would be a traditional office building how does that work in a say a warehouse versus a manufacturing site I want to say the warehouses are easy but they're kind of easy right I mean so it's a shell of a building you have your dock equipment maybe you have air conditioning probably you don't maybe you have fans so that piece of it is easier to solve for I mean I think the manufacturing that the fact that it is so specialized right that you have to have the power you have to have the infrastructure and everything else that that it's just a much more in-depth process and struggle to figure out so in terms of the process we're talking about not just getting the goods to Market we're talking about the variables Beyond cost let's go to the variables Beyond cost because we can all agree doing things more efficiently cheaply we all agree on that but there are some things that are really scarce starting with labor and how much does labor play into your world and how do you advise clients like David I mean labor is a huge part of any decision if you can't hire the people you you can't operate a facility which in the end of the day is going to be problematic along with labor I think you got things like infrastructure not necessarily the like the cost of electricity or the cost of rail but is it available can you actually get it which is problematic right if you can't get the power you need and you can't expand the facility the way you want to that's going to be a problem if you need to put a facility on the west coast and or the western region and you can't get any water that's going to going to be a problem so I think companies are having to face these decisions around can they even get the things they need to operate the facility at all and I think the question is becoming like do you want to get cheap and really risky in terms of a facility you want to do or do you want to get expensive and play it safe and i' I'd argue that most of our clients are leaning towards the I'll go expensive and play it safe just to make sure that the facility will run long term even if it costs a little bit more I think that's also the business case for reshoring manufacturing right we had a customer uh that recently literally built a plant making the same exact product next to a plant that they're closing down and the labor intensity at the new plant is much lower the labor quality and training is much higher the old plant looked like a manufacturing plant the new plant looks like a clean room with a few guys that have engineering degrees running a whole bunch of automation at and producing the product at like a five times fold productivity rate and I think if you were looking at this business decision 30 years ago ago that wouldn't have been the same conclusion that the organization would have made because you wouldn't had the labor shortage that we're facing today you probably would have looked offshore at a lower cost Market because the resiliency of the supply chain was perceived to be a lot higher than it is today also I just think the political climate today is a little bit different where I think there is a uh China plus one strategy going on broadly in Supply chains and I think there's a a bias now within organ ations to decide to keep it closer to the market that's being served I've seen that change I mean I started my career in corporate real estate in the mid90s and I felt like a hatchet man all I did was close plants in North America clean them up and sell them and I've done more site Selections in the last three years than I did in the previous 25 David how do you deal with skilled labor versus cost of Labor and all these other issues so tree houses portfolio is US and Canada so we're kind of global kind of North America Centric right and it's interesting I think as AJ was talking about the the whole labor piece of this I even think probably preco companies had a different perspective on are we going to be willing to pay for the Automation and it change how we're producing things in plants and probably the answer to that was no I think postco people are looking at it very very differently and coming out of what we've been going through with the labor shortages uh and the struggles plants have had in maintaining manufacturing that all of a sudden that's probably something they're willing to look at a lot closer if not pursue allog together just because we need to overcome those challenges that we've had previously let's talk about the system for just a moment so when we had the CEO of uh mirold on this show he talked about what was known as the quote unquote the cold chain meaning that when you take a Trader Joe's peanut butter cup and by the way first of where do you manufacture them how do you get it to the store so wisdorf Pennsylvania is where that plant manufactures those items and so I guess we kind of have a a bif for Network right so have ambient temperature warehouses then we also have the Frozen warehouses that we make refrigerated dough frozen waffles and items like that and so we do we have two distinct Supply chains uh that we have to operate within the ambient which is usually easier to solve easier to pick locations and then the cold freezer areas where I mean it's much more expensive and challenging to find those locations particularly if you are in a tertiary Market where you're producing these items so there's a Trader Joe's literally 50 ft from where we're sitting right now did walked right past it and I I and everybody else here is going to go load up on Peanut Butter Cups but so you manufacture these things in Pennsylvania I presume you freeze them and then you ship them to somewhere and it makes its way to Boise how many different facilities do you think this peanut butter cup went to before it made it here to Boise AO we want to touch an item as few times as possible and so we want to get it to Trader Joe's as quickly as we can get it in their Network and then they're the ones that are going to distribute it out so I think it's a little bit easier from our perspective but in the great process it's one that has some complexities on how you get something from Pennsylvania to Boise Idaho or elsewhere so Seth we had on this show a green grocer uh that had about uh 300 locations in the United States and they said they would not put a store more than I believe it was 200 miles from any Distribution Center because they because they were Fresh Foods and needed to be that proximate to the end user how do you play into that proximity when you're dealing with manufacturing sure and there's plenty of examples out there what I would say is when proximity to either distribution centers or retail locations come into play We map those and say hey how important is it to be near these and if we need to can we add weights to all of them and basically put pins on a map and say how close do we need to be where's that what we would call the circle of indifference on a map of the US look like so that's definitely part of what we take into consideration but I would argue that for most of the major manufacturing plants we're working with that circle is pretty big they serve a pretty large geography we're talking complete to West Western United States or Eastern United States so usually it's a little bit bigger but it does come into play quite often depending on what we're working on but food is a unique item because it's perishable right right and so the cold chain and proxim particularly if you don't freeze it so David let me ask you that next question though we all big fans of peanut butter cups do you manufacture any Goods that aren't Frozen and how do you distribute that type of good to the market so we do right and I mean so whether it's crackers pretzels cookies all like we have a lot of items right that that are going to be in the ambient network but they all follow the same model right so like we produce them uh like Manel Wisconsin uh but then we have to figure out okay so it goes to our bigger DCS goes out to the customers and again we try to minimize touches within our network uh before it gets to the customer just to be sure that uh I mean we keep costs and everything complexity as simple as possible to David's Point around touching things less in the supply chain that same argument can be made for Mexico a lot of the companies that we're working with they think about Mexico and they say well that's an extra two or or three touches as we get it across the border and so on and so forth so that kind of hurts that decision but at the same time significantly cheaper there's a a lot of benefit to doing it there as well the point I wanted to make is we never used to see comparisons between like montere and Mexico and Atlanta that financial analysis never used to happen now it's happening all the time so I have a colleague in Mexico City her name is Yasmin Ramirez she does exactly what I do for Mexico and I mean I talked to her more than I've ever talked to her in my almost 20 years at CB so Mexico probably to a lesser extent Canada are definitely on the map especially as we see that reshoring back in so it's going to be interesting to see how that all plays out let's now talk about the pandemic briefly I know it's come up a couple times today and I understand how rents went up but tell me some of the other changes that happened to our practice pre and post pandemic that's a great question I mean what I would say is the influx of industrial projects we've had since Co has just been crazy I mean we were already busy and now we're crazy busy and I think I was saying before that the equation like you were were saying before the resiliency issue associated with manufacturing abroad has really come up a lot now I think companies are basically saying you know the cheap labor rates in China were great but now we're realizing that if something happens that disrupts the entire system and we can't get our product from China to the US that's something that we can't take so we need to move maybe not all of that manufacturing capacity but at least some of it back to the United States frankly I think there's probably some federal and National Security issues there too so I think that's it's all kind of a line to work together as we're seeing all the reshoring of all that manufacturing back to the US I think a market impact postco is it's almost the second ring of the Ripple though it's not the first ring of the Ripple is there's a lot of nimbyism associated with Industrial Development today there's a lack of sites whereby you you know uh five years ago you went to community with an large manufacturing uh project and you'd get welcom with open arms incentives come here's land here's how you got to do it here's our people and now uh communities and political entities are really taking a harder look and saying man do we really want this use in our community do we want 200 trucks a day do we want this emission profile do we want this product stored in our community and there's a lot of as often happens in human nature a little bit of overreaction I believe in terms of the push back on Industrial Development but it's certainly constraining sites the both the com the combination of this nimbyism that's happening and the large takedown of sites over the last five years seven years is combining to create a limited supply of sites that are uh particularly manufacturing sites uh Seth and I worked on a project in the Kentucky Tennessee area in Ohio um two years ago we really needed rail it was a must have requirement I think in a 450 mile radius we had three legitimate sites with rail served and and meeting the other variables we need so I think that's probably the biggest change in terms of executing for customers in the markets postco is that limited availability David let me turn to another issue as it deals with the pandemic a little bit one of the areas of resiliency that we heard about was increasing inventories because people were afraid well you know we're not going to have these Goods uh the the good delivery is at risk and so we've heard about some uh groups adding more inventory as a result have you seen any of that in your business through covid and probably until relatively recently I mean our plants were basically producing everything they could uh and so we produced it we sold it we shipped it out and so I think probably one of the challenges that we have encountered is uh you know maybe we're going to be able to ship out a certain percentage of what a customer actually ordered so they take that into account so the next time they place an order they're going to say well I'm going to order 100 units even though I need 75 thinking if I get that 75 it's going to be all good and so I think that that's been a struggle that we've worked through is that uh maybe kind of getting the trust and being sure everyone is communicating to one another uh what the actual order needs to be as opposed to maybe having a little bit of a a buffer in there that they're adding on to that total that they're looking for um so let me ask a rhetorical question is it possible to have too many peanut butter cups I don't my wa one as well yeah yeah so David turning to you now on the ESG question how does that that play into um your site selection and your operation of your existing sites we've focused on three different areas so environmental and climate uh people and communities and then products and operations from a real estate perspective um the big change is uh all of a sudden there's may be more visibility to how real estate can impact those whether it's things like lead certification ensuring that you use sustainable materials in the construction uh an interest in solar and incorporating that into the site as well as a focus on the employees to be sure that you provide them an optimal place to work um that that all those have been factors but I think one of the things that is maybe an interesting change that hopefully as a company that you're able to take advantage of is for a lot of our locations I mean landlords have the same ESG requirements as well and so I think the new thing I mean within the past two months we've had a lot of major landlords reach out to us and say hey we want to partner with you to meet their ESG goals our ESG goals and so maybe the positive is right if all these people are striving and pushing to get results that we're going to be able to get there quicker that sense of camaraderie is not something that's always been in place between the landlord and tenant and so it'll be interesting to see how that plays out I mean to your point earlier Spencer I mean a lot of the machines that actually manufacture the goods that we're using now are like being developed today so tough to tell what the impact will be but I think a lot of the goal is let's use as little power as we can let's use as little water as we can in that process we're seeing that all over the manufacturing companies we're working with fuel mix is becoming important and we've got these companies that have come out and made public statements we're going to do X Y and Z with ESG but also there's a cost savings to that if you use less power it's going to be cheaper for you to produce your good if you use less water it's going to be cheaper and that's today those things are just going to get more and more expensive so the less you use the better you're going to be as an operator so we're going to ask everybody for their final thoughts here and so uh why don't we start with you David and uh Treehouse Foods just tell us what your next five years years looks like from a real estate standpoint what are some of the key thoughts you would give to our listeners about manufacturing where we are where we're going from a treehouse perspective I think it's exciting right so uh we are looking at growth looking at opportunities and so uh we are are going to be expanding that's always a whole lot easier and better of a scenario than when you're on the other side of that coin the other piece of that though is our network is going to be evolving as well and so trying to be sure that whatever we put in place today has some flexibility component to that so that we can incorporate what changes come down the road over the next five years as you said great Seth I mean the way I see it we've got two really big issues labor and infrastructure we're trying to fix the problem we're putting it into elementary schools even to say hey a skilled trade job is a successful job where you can make a lot of money the problem is that's elementary schools it's going to be a while before those people hit the workforce so it's going to take some time to get there on the other side you got infrastructure constraints all over the place the Federal Government as everybody's seen is throwing a lot of money at that problem as well and that's going to help the federal government's got a big bazooka they can use with money but it takes time for those things to get implemented so there's going to be this Gap where if we attend to bring this much manufacturing back into the us we're going to have some constraints both on labor and infrastructure but eventually we'll get over it it's just how painful will that Gap be before we get there is the interesting question that we're trying to figure out for our clients AJ I think the globalization of our supply chain got ripped apart in Co and I think production capacity is going to go much closer we're seeing it in the US but it's going to happen globally is going to go much closer to enduser and end purchaser consumption so whether that be cell phones in Vietnam instead of China or cell phone production or semi semiconductor production coming to North America I just think the bias in the highest level of manufacturing organizations of those decision makers is going to be let's just get our capacity close to and proximate to are end consumers and I think that's going to go on for another 10 20 years well thanks everybody for joining the show today at the industrial asset management council's meeting here in beautiful Boise Idaho my third visit to Boise in 3 months I'm glad I'm here David verali director of real estate Treehouse Foods thanks for coming thank you very much AJ Magner Vice chairman CBRE thanks AJ thanks Spencer it was a pleasure and Seth marale who brought me my ice coffee senior managing director Amer am is Consulting thank you Seth thanks spencor appreciate it in the weeks to come we'll turn our attention to the big picture of other asset types such as ports and data centers and we'll focus on people too leaders and Leadership including a visit from former United Airlines CEO Oscar Munoz to talk about his work and the growing presence of Latinos as an influential demographic we'll have a return visit from author Jacob Morgan talk about his new book leading with vulnerability and lots more it's a packed fall season on our show meanwhile you can visit our website cb.com thee weekly take and you can send us questions or comments via the talk to us button on our homepage don't forget to share the show as well as subscribe rate and review us wherever you listen for now thanks for joining us I'm Spencer Levy be smart be safe be welldriven by the effects of pandemic related supply chain issues along with everything from macroeconomic forces to basic consumer choices and more the industrial sector is going strong and the US is on a path to a manufacturing Revival on this episode we traveled out to Boise Idaho site of the industrial Asset Management council's fall Forum to meet three real estate leaders attending the conference we found found out what's powering the asset class they focus on manufacturing the moment in time we're in now the velocity and volume of manufacturing projects is 10 or more fold compared to the average over the last 20 years that's AJ Magner a vice chair at CBRE who runs a global advisory team that helps manufacturing and distribution organizations manage their real estate portfolios we've done everything from tanks to to tofu it's a nice stretch of stuff we get to work on that's Seth marale senior managing director for CB's America's Consulting platform Seth specializes in site selection and location incentives and to provide insights from an occupier perspective we welcome a leader for a major manufacturer David valali director of real estate for Treehouse Foods it is so specialized right that you have to have the power you have to have the infrastructure and everything else that that is just a much more in-depth process and struggle to figure out David oversees a nationwide network of factories distribution centers offices and more for this multi-billion dollar private label food producer Treehouse makes products that hit the market under a variety of well-known Brands likely including some of what you put on the kitchen table or stock in your pantry each week coming up morning coffee in Boise in a conversation about a specialty manufacturer the nuances of this essential asset class and all the ingredients of a big real estate story I'm Spencer Ley and that's right now on the weekly take welcome to the weekly take and this week we are in beautiful Boise Idaho with David verelli director of real estate Treehouse Foods David thanks for joining the show thank you very much then we have AJ Magner AJ thanks for joining thanks Spencer and then we have Seth marale who uh did the correct thing this morning by bringing me iced coffee thank you Seth trying to score points earlier you see that we'll be nice to Seth today so to start off the show today why don't we just tell everybody who you are and what you do David why don't you tell us that Treehouse Foods is one of the largest private band brand food manufacturers so roughly about 3.5 billion in sales we operate in 17 categories like crackers cookies pretzels coffee all those things and then we make them for the large companies so you don't see our name on anything but we work with all the the large retailers great so most important question do you have any particular food item that's your favorite so I do uh the Trader Joe's peanut butter cups okay is one of ours and so yeah that would be it so we don't have much more to ask here today did you bring in show's over so David I know all of us are running out to Trader Joe's now to buy some peanut butter cups I certainly am on my way back to my hotel but David let's pull the lens out just a little bit where are some of your facilities located and what are some of your major considerations to uh to pick them well so Treehouse as a company is basically grown through acquisition we haven't had a lot of organic growth that we basically bought companies inherited locations where they were um and so that's a little bit different of a scenario just in terms of of how we've established ourselves so in total we have 93 sites across North America uh we have 26 manufacturing facilities um we have some warehouses that are associated with those and so those would be locations but primarily like the the large mixing centers distribution centers offices all those are going to be leased everything else plants and the plant warehouses are going to be owned locations M so one of the major differences between manufacturing and a just a big pal box Warehouse Center is the equipment that's in there which is really unique really expensive tell us a little bit about that yeah it is right so so I mean I think any of our production facilities I mean there's extensive Capital that has to go into those like the infrastructure within the building as well as the equipment itself and so being sure that the company is able to spread that cost over time right it makes more sense to own it than have to capitalize it on a 5-year lease a 10year lease uh and the cost of redeploying that equipment and moving it that hinders you to stay where you are right that it's it's going to be a big um cost and incremental spend to move locations from one site to another and I've also seen but this is particularly true in the Auto industry so I'm just going to ask your opinion in the food manufacturing industry that very often this equipment is so unique that it's cheaper to start from scratch and build a new plant with new equipment than it is to try to repurpose existing equipment is that true I would say to some instances yeah it is right and and it's so specialized um like we have some equipment at some our facilities that's so old that we actually don't think we could move it right and so it either stays where it is or we have to get it new so yeah it is somewhat exceptional that way and the thought is a with that cost of capital as well as what the cost would be to try to move those plants elsewhere those need to be owned so we need to have the stability of owning those locations the mixing centers uh so most or some of the warehouse locations as well as offices those are going to be leased facilities simply so we have flexibility within our Network let me turn to you for a moment Seth on that same question in terms of going to a place to pick a site and obviously you've got the cost of land you've got the availability of labor but you have a lot of these older manufacturing are areas that their better days economically were yesterday how much are they attractive versus new places that might have a deeper labor source I think like everything else it's a matter of balance right the further outside of a Major Market you go the more issues you've got with labor acquisition it's be harder for you to get the infrastructure you need it's obviously going to be cheaper and there's going to be more incentives there but you got to balance can we really run our operation here for as cheap as it might be I think most of the companies we're working with tend to lean towards less risk and pay more money but that's just uh operating profile for today you know that may change the hard part is once a certain area of a city or a certain area of the country gets like a boost somebody big goes in there everybody else follows them so hard to predict where that might be but I think it's a good reason why sometimes States go big on economic incentives for one particular project because you win that one big one and everyone else says well they went there there must be something going on there that's right let's go there as well so all a balancing act so a J let's just pull the lens back just a little bit more um the manufacturing in the United States it peaked and then it fell hard and now it's coming back I think that's a fair way to put it about how manufacturing has a lot of it was off short but now we're talking because of post pandemic it coming back tell us the big picture of where manufacturing is today and where you see it going yeah from a real estate lens I'd say let's look at it over the last 20 years the moment in time we're in now the velocity and volume of manufacturing projects is 10 or more fold compared to the average over the last 20 years there's a high demand for manufacturing projects the uniqueness of the manufacturing plant itself as an asset class is much more like the traditional single family residential market right it's owner occupied so there's not really uh a big thirst for international capital and institutional Capital to own a broth Manufacturing facility right there's a niche of investors that will play in that space But it's really an owner occupied Market from a a real estate asset class standpoint um for the reasons that we you know have discussed today in terms of the stickiness of infrastructure the stickiness of equipment the specialization of Labor markets um and just the comfort of owning and having a 100% control of the fee of that site that's how the asset class plays in the overall portfolio mix for most organizations AJ just tell us how the manufacturing practice somehow differs from our general Logistics practice uh it couldn't be more different right uh Logistics the variables you're dealing with are typically by Nature movement and pro of product through the building and to the customer right to the building through the building to the customer on the manufacturing side you're often dealing with bulk inbound of raw materials where value is getting added to that bulk uh inbound raw material whether it be rock or grain or something else and then you got to figure out how to get it to the plant to the Distribution Center uh in the most efficient way the customers and then additionally Seth will tell you the variables that are going into the site selection decision on a manufacturing are much different also because it's much more heavily weighted toward site infrastructure incentives labor labor labor labor um and also a lot of environmental issues and environmental conditions I did a site selection for a potato chip manufacturing group group once we were looking in the west half of the US and a potato chick bag at a certain elevation will pop so we had to be on the right side of the Rockies we found this out about Midway through so we wasted a lot of time uh but you have to be on the right side of the Rockies to get potato chips to La Market basically so um there's a lot of interesting things that go into manufacturing site selection that really make my job fun that's pretty cool I should also note that we are in Boise so we are contractually obligated to mention the word potato at least we' got we've got one or two down Ching done so Seth labor site selection local incentives there's aund directions we can go here but where do you start the conversation with somebody looking to put a plant in the United States yeah I mean it's difficult because it depends on what they're doing we've done everything from tanks to tofu it's a nice stretch of stuff we get to work on um what I would say is typically labor as AJ mentioned tends to be one of the most important factors we're looking at frankly if you don't have enough people to work at the facility doesn't make any difference how awesome it is nobody works there it doesn't work so we tend to look at Labor a lot you could say the same thing with the distribution center but the labor is usually different it's a skilled trade that you T typically need so whether that's a tool and die operator a CNC manufacturer electrical engineer whatever it may be those are a little bit harder to find for me the other big one that I think not a lot of people talk about but I think it's going to be very very important here real soon is the infrastructure requirements AJ alluded to it earlier especially with food manufacturing typically that's a lot of water and as you guys probably know in the news water is becoming harder and harder to come by so that's going to be interesting to see how that plays out as we go a little bit forward in the future so I think environmental resiliency is also an issue that is becoming a Topline topic when we're doing s selection in terms of not just the earthquake hurricane Mass impact of this Mass event but sort of the Baseline that we're seeing you know the hottest summer of record on Earth this summer and how that's impa in the inside the box and how it's impacting labor in terms of executing their job in a in a plant it matters the other thing that's kind of interesting too is a manufacturing plan at least from my perspective tends to have a longer life so the decisions you're making are like 30 plus year decisions so maybe temperature is on the borderline of whether or not you need to take it into consideration today but 30 years from now it's a lot different same could go with climate change and impact on being near the water I mean there's a variety of different issues that occupiers when they're building a new plan have to take into consideration so uh AJ turning to you tell us a little bit more about your practice uh is it Global tell us the types of companies you represent and some of the unique issues you might have by industry starting with food sure yeah so we repres I love the tofu to tanks thing Seth so not we're not dealing with tofu or tanks specifically but uh we have a wide spectrum of manufacturing organizations that we support so we've got building materials uh electrical components uh consumer products food manufacturing and our practice is Prim adding value by Outsourcing the corporate real estate activities that historically when these organizations had L large internal real estate organizations um they self-performed right and over time the pendulum is swung and instead of having multiple service providers that are not necessarily communicating or talking to each other customarily our team's bringing together all these experts the local market experts the local brokerage experts and really building a business case for an individual site based on the company's business case of needing a production capacity that's really what we're doing so that's at the front end yeah but then once the facility is built we're also providing Services there is that correct absolutely yeah in the industrial space one element that uh We've unfortunately had to focus on from an occupier perspective is the uh large jumps in rents in the market and we've had to really become very cinct communicators when it comes to getting the SE sues attention on what's going to happen to their portfolio holistically as it's impacted by what's happening in the market so if David by way of example has 50 lease sites with all the lease end dates approaching in the next seven years we're having to build a portfolio view of all the fair market value assessments that's going on in the market where you are today where that book rent or Gap rent is today and what that lift means from an Enterprise Value perspective to the organization when you take the multiple of what that organization's trading at and what that means to the company overall so that's what you need to do to get the SE Su attention and otherwise you're just going to take a beating every time you have a a new lease renewal coming up and they're like why is my rent doubling in the Inland Empire and it's like well we told you this was happening holistically so um so yeah it it takes a little bit uh higher view on the portfolio to get the attention of the seite I might add I think so the rent is obvious right that's something that we're all dealing with and and it it's certainly been uh problem in terms of just renewing sites but I think the other is like even components from construction the lead time on those the timing I mean it used to be that that if someone came to you and they said I need site ready in three months yeah we can do that and all of a sudden that timeline is sh shifted dramatically as well so you really have to constantly give information to be sure they understand what the market is with absolutely yeah rents timing and everything else we have a terrific colleague of ours his name is James Breeze he runs our Industrial Research on the landlord side and I just pulled up one of his slides because I think it's important that people understand the entire supply chain what these costs are and I'm just going to read a few figures from James on what percentage of your cost is rent and so this is the breakdown of logistics cost according to James Brees and so Transportation costs 45 to 70% think about that 45 to 70% fixed facility costs 3 to 6% yes your rent may be going up at these stratospheric levels but if you put that facility in a more strategic spot you might be saving yourself some money on trucking and other costs Seth what's your point of view let me politely disagree so for the manufacturing component of it yeah there's a transportation side of it but if you can't manufacture anything Transportation doesn't matter anymore you don't have any product to deliver what does it matter so if you're talking about distribution centers sure that Transportation cost really relevant talking about a manufacturing facility you keeping that facility up and running is critical it's the only thing you really care about which is why when we saw Co the equation of how much risk do we have in our system to keep things running and the manufacturing system totally got rebalanced and now you're seeing that take effect here as we see a lot of reshoring back into the US someone took a really big wrench and threw it into our machine that was working pretty well and now we're having to figure out how the new machine's going to work the other thing I would add to cth comment Spencer is uh if you look at those cost categories you just rattled off those are all variable cost if I make one half less whatever widgets I'm making my transportation's likely going to go down proportionately half rough or plus or minus however real estate is illiquid long-term commitments and immobile so I can't take it and move it I can't get out of it very easy and I'm usually signing a lease for at least 5 years sometimes 10 15 20 so the compounding nature of that commitment that's going in front of the board whereas you got spot rates on freight week to week month to month as opposed to to going to an organization and saying hey I own $150 million lease commitment it just raises the profile in the organization when you're going through the corporate Loa and or level of authority sorry level of authority and approval process I think you brought up a great point and and David I'd like your point of view on this because when we're dealing with real estate of different types so the difference between say a Suburban office building and a medical office building is they may look identical from the outside but the amount of redundant power the amount of redundant air other things make a medical office building a lot more expensive a lot more risky to run than would be a traditional office building how does that work in a say a warehouse versus a manufacturing site I want to say the warehouses are easy but they're kind of easy right I mean so it's a shell of a building you have your dock equipment maybe you have air conditioning probably you don't maybe you have fans so that piece of it is easier to solve for I mean I think the manufacturing that the fact that it is so specialized right that you have to have the power you have to have the infrastructure and everything else that that it's just a much more in-depth process and struggle to figure out so in terms of the process we're talking about not just getting the goods to Market we're talking about the variables Beyond cost let's go to the variables Beyond cost because we can all agree doing things more efficiently cheaply we all agree on that but there are some things that are really scarce starting with labor and how much does labor play into your world and how do you advise clients like David I mean labor is a huge part of any decision if you can't hire the people you you can't operate a facility which in the end of the day is going to be problematic along with labor I think you got things like infrastructure not necessarily the like the cost of electricity or the cost of rail but is it available can you actually get it which is problematic right if you can't get the power you need and you can't expand the facility the way you want to that's going to be a problem if you need to put a facility on the west coast and or the western region and you can't get any water that's going to going to be a problem so I think companies are having to face these decisions around can they even get the things they need to operate the facility at all and I think the question is becoming like do you want to get cheap and really risky in terms of a facility you want to do or do you want to get expensive and play it safe and i' I'd argue that most of our clients are leaning towards the I'll go expensive and play it safe just to make sure that the facility will run long term even if it costs a little bit more I think that's also the business case for reshoring manufacturing right we had a customer uh that recently literally built a plant making the same exact product next to a plant that they're closing down and the labor intensity at the new plant is much lower the labor quality and training is much higher the old plant looked like a manufacturing plant the new plant looks like a clean room with a few guys that have engineering degrees running a whole bunch of automation at and producing the product at like a five times fold productivity rate and I think if you were looking at this business decision 30 years ago ago that wouldn't have been the same conclusion that the organization would have made because you wouldn't had the labor shortage that we're facing today you probably would have looked offshore at a lower cost Market because the resiliency of the supply chain was perceived to be a lot higher than it is today also I just think the political climate today is a little bit different where I think there is a uh China plus one strategy going on broadly in Supply chains and I think there's a a bias now within organ ations to decide to keep it closer to the market that's being served I've seen that change I mean I started my career in corporate real estate in the mid90s and I felt like a hatchet man all I did was close plants in North America clean them up and sell them and I've done more site Selections in the last three years than I did in the previous 25 David how do you deal with skilled labor versus cost of Labor and all these other issues so tree houses portfolio is US and Canada so we're kind of global kind of North America Centric right and it's interesting I think as AJ was talking about the the whole labor piece of this I even think probably preco companies had a different perspective on are we going to be willing to pay for the Automation and it change how we're producing things in plants and probably the answer to that was no I think postco people are looking at it very very differently and coming out of what we've been going through with the labor shortages uh and the struggles plants have had in maintaining manufacturing that all of a sudden that's probably something they're willing to look at a lot closer if not pursue allog together just because we need to overcome those challenges that we've had previously let's talk about the system for just a moment so when we had the CEO of uh mirold on this show he talked about what was known as the quote unquote the cold chain meaning that when you take a Trader Joe's peanut butter cup and by the way first of where do you manufacture them how do you get it to the store so wisdorf Pennsylvania is where that plant manufactures those items and so I guess we kind of have a a bif for Network right so have ambient temperature warehouses then we also have the Frozen warehouses that we make refrigerated dough frozen waffles and items like that and so we do we have two distinct Supply chains uh that we have to operate within the ambient which is usually easier to solve easier to pick locations and then the cold freezer areas where I mean it's much more expensive and challenging to find those locations particularly if you are in a tertiary Market where you're producing these items so there's a Trader Joe's literally 50 ft from where we're sitting right now did walked right past it and I I and everybody else here is going to go load up on Peanut Butter Cups but so you manufacture these things in Pennsylvania I presume you freeze them and then you ship them to somewhere and it makes its way to Boise how many different facilities do you think this peanut butter cup went to before it made it here to Boise AO we want to touch an item as few times as possible and so we want to get it to Trader Joe's as quickly as we can get it in their Network and then they're the ones that are going to distribute it out so I think it's a little bit easier from our perspective but in the great process it's one that has some complexities on how you get something from Pennsylvania to Boise Idaho or elsewhere so Seth we had on this show a green grocer uh that had about uh 300 locations in the United States and they said they would not put a store more than I believe it was 200 miles from any Distribution Center because they because they were Fresh Foods and needed to be that proximate to the end user how do you play into that proximity when you're dealing with manufacturing sure and there's plenty of examples out there what I would say is when proximity to either distribution centers or retail locations come into play We map those and say hey how important is it to be near these and if we need to can we add weights to all of them and basically put pins on a map and say how close do we need to be where's that what we would call the circle of indifference on a map of the US look like so that's definitely part of what we take into consideration but I would argue that for most of the major manufacturing plants we're working with that circle is pretty big they serve a pretty large geography we're talking complete to West Western United States or Eastern United States so usually it's a little bit bigger but it does come into play quite often depending on what we're working on but food is a unique item because it's perishable right right and so the cold chain and proxim particularly if you don't freeze it so David let me ask you that next question though we all big fans of peanut butter cups do you manufacture any Goods that aren't Frozen and how do you distribute that type of good to the market so we do right and I mean so whether it's crackers pretzels cookies all like we have a lot of items right that that are going to be in the ambient network but they all follow the same model right so like we produce them uh like Manel Wisconsin uh but then we have to figure out okay so it goes to our bigger DCS goes out to the customers and again we try to minimize touches within our network uh before it gets to the customer just to be sure that uh I mean we keep costs and everything complexity as simple as possible to David's Point around touching things less in the supply chain that same argument can be made for Mexico a lot of the companies that we're working with they think about Mexico and they say well that's an extra two or or three touches as we get it across the border and so on and so forth so that kind of hurts that decision but at the same time significantly cheaper there's a a lot of benefit to doing it there as well the point I wanted to make is we never used to see comparisons between like montere and Mexico and Atlanta that financial analysis never used to happen now it's happening all the time so I have a colleague in Mexico City her name is Yasmin Ramirez she does exactly what I do for Mexico and I mean I talked to her more than I've ever talked to her in my almost 20 years at CB so Mexico probably to a lesser extent Canada are definitely on the map especially as we see that reshoring back in so it's going to be interesting to see how that all plays out let's now talk about the pandemic briefly I know it's come up a couple times today and I understand how rents went up but tell me some of the other changes that happened to our practice pre and post pandemic that's a great question I mean what I would say is the influx of industrial projects we've had since Co has just been crazy I mean we were already busy and now we're crazy busy and I think I was saying before that the equation like you were were saying before the resiliency issue associated with manufacturing abroad has really come up a lot now I think companies are basically saying you know the cheap labor rates in China were great but now we're realizing that if something happens that disrupts the entire system and we can't get our product from China to the US that's something that we can't take so we need to move maybe not all of that manufacturing capacity but at least some of it back to the United States frankly I think there's probably some federal and National Security issues there too so I think that's it's all kind of a line to work together as we're seeing all the reshoring of all that manufacturing back to the US I think a market impact postco is it's almost the second ring of the Ripple though it's not the first ring of the Ripple is there's a lot of nimbyism associated with Industrial Development today there's a lack of sites whereby you you know uh five years ago you went to community with an large manufacturing uh project and you'd get welcom with open arms incentives come here's land here's how you got to do it here's our people and now uh communities and political entities are really taking a harder look and saying man do we really want this use in our community do we want 200 trucks a day do we want this emission profile do we want this product stored in our community and there's a lot of as often happens in human nature a little bit of overreaction I believe in terms of the push back on Industrial Development but it's certainly constraining sites the both the com the combination of this nimbyism that's happening and the large takedown of sites over the last five years seven years is combining to create a limited supply of sites that are uh particularly manufacturing sites uh Seth and I worked on a project in the Kentucky Tennessee area in Ohio um two years ago we really needed rail it was a must have requirement I think in a 450 mile radius we had three legitimate sites with rail served and and meeting the other variables we need so I think that's probably the biggest change in terms of executing for customers in the markets postco is that limited availability David let me turn to another issue as it deals with the pandemic a little bit one of the areas of resiliency that we heard about was increasing inventories because people were afraid well you know we're not going to have these Goods uh the the good delivery is at risk and so we've heard about some uh groups adding more inventory as a result have you seen any of that in your business through covid and probably until relatively recently I mean our plants were basically producing everything they could uh and so we produced it we sold it we shipped it out and so I think probably one of the challenges that we have encountered is uh you know maybe we're going to be able to ship out a certain percentage of what a customer actually ordered so they take that into account so the next time they place an order they're going to say well I'm going to order 100 units even though I need 75 thinking if I get that 75 it's going to be all good and so I think that that's been a struggle that we've worked through is that uh maybe kind of getting the trust and being sure everyone is communicating to one another uh what the actual order needs to be as opposed to maybe having a little bit of a a buffer in there that they're adding on to that total that they're looking for um so let me ask a rhetorical question is it possible to have too many peanut butter cups I don't my wa one as well yeah yeah so David turning to you now on the ESG question how does that that play into um your site selection and your operation of your existing sites we've focused on three different areas so environmental and climate uh people and communities and then products and operations from a real estate perspective um the big change is uh all of a sudden there's may be more visibility to how real estate can impact those whether it's things like lead certification ensuring that you use sustainable materials in the construction uh an interest in solar and incorporating that into the site as well as a focus on the employees to be sure that you provide them an optimal place to work um that that all those have been factors but I think one of the things that is maybe an interesting change that hopefully as a company that you're able to take advantage of is for a lot of our locations I mean landlords have the same ESG requirements as well and so I think the new thing I mean within the past two months we've had a lot of major landlords reach out to us and say hey we want to partner with you to meet their ESG goals our ESG goals and so maybe the positive is right if all these people are striving and pushing to get results that we're going to be able to get there quicker that sense of camaraderie is not something that's always been in place between the landlord and tenant and so it'll be interesting to see how that plays out I mean to your point earlier Spencer I mean a lot of the machines that actually manufacture the goods that we're using now are like being developed today so tough to tell what the impact will be but I think a lot of the goal is let's use as little power as we can let's use as little water as we can in that process we're seeing that all over the manufacturing companies we're working with fuel mix is becoming important and we've got these companies that have come out and made public statements we're going to do X Y and Z with ESG but also there's a cost savings to that if you use less power it's going to be cheaper for you to produce your good if you use less water it's going to be cheaper and that's today those things are just going to get more and more expensive so the less you use the better you're going to be as an operator so we're going to ask everybody for their final thoughts here and so uh why don't we start with you David and uh Treehouse Foods just tell us what your next five years years looks like from a real estate standpoint what are some of the key thoughts you would give to our listeners about manufacturing where we are where we're going from a treehouse perspective I think it's exciting right so uh we are looking at growth looking at opportunities and so uh we are are going to be expanding that's always a whole lot easier and better of a scenario than when you're on the other side of that coin the other piece of that though is our network is going to be evolving as well and so trying to be sure that whatever we put in place today has some flexibility component to that so that we can incorporate what changes come down the road over the next five years as you said great Seth I mean the way I see it we've got two really big issues labor and infrastructure we're trying to fix the problem we're putting it into elementary schools even to say hey a skilled trade job is a successful job where you can make a lot of money the problem is that's elementary schools it's going to be a while before those people hit the workforce so it's going to take some time to get there on the other side you got infrastructure constraints all over the place the Federal Government as everybody's seen is throwing a lot of money at that problem as well and that's going to help the federal government's got a big bazooka they can use with money but it takes time for those things to get implemented so there's going to be this Gap where if we attend to bring this much manufacturing back into the us we're going to have some constraints both on labor and infrastructure but eventually we'll get over it it's just how painful will that Gap be before we get there is the interesting question that we're trying to figure out for our clients AJ I think the globalization of our supply chain got ripped apart in Co and I think production capacity is going to go much closer we're seeing it in the US but it's going to happen globally is going to go much closer to enduser and end purchaser consumption so whether that be cell phones in Vietnam instead of China or cell phone production or semi semiconductor production coming to North America I just think the bias in the highest level of manufacturing organizations of those decision makers is going to be let's just get our capacity close to and proximate to are end consumers and I think that's going to go on for another 10 20 years well thanks everybody for joining the show today at the industrial asset management council's meeting here in beautiful Boise Idaho my third visit to Boise in 3 months I'm glad I'm here David verali director of real estate Treehouse Foods thanks for coming thank you very much AJ Magner Vice chairman CBRE thanks AJ thanks Spencer it was a pleasure and Seth marale who brought me my ice coffee senior managing director Amer am is Consulting thank you Seth thanks spencor appreciate it in the weeks to come we'll turn our attention to the big picture of other asset types such as ports and data centers and we'll focus on people too leaders and Leadership including a visit from former United Airlines CEO Oscar Munoz to talk about his work and the growing presence of Latinos as an influential demographic we'll have a return visit from author Jacob Morgan talk about his new book leading with vulnerability and lots more it's a packed fall season on our show meanwhile you can visit our website cb.com thee weekly take and you can send us questions or comments via the talk to us button on our homepage don't forget to share the show as well as subscribe rate and review us wherever you listen for now thanks for joining us I'm Spencer Levy be smart be safe be well\n"