Daniel Tropp founded AEBOV Industrial Realty Brokerage to hone in on his passion for industrial real estate and offer new solutions to valued clients. Over the past 10 years, Daniel has had the privilege of working for some of New York City’s most influential owners and working alongside some of the industry’s brightest brokers while leading teams at Avison Young and Ariel Property Advisors. He chairs REBNY’s Development Committee, contributes regular columns to the Commercial Observer, and has also been quoted in the NY Times, Real Deal, NY YIMBY, Real Estate Weekly, Connect Media, BISNOW, and more.
Today, Daniel joins us to discuss industrial real estate and how sales and leasing are booming thanks to the increasing sophistication of industrial properties and investors’ interest in this type of asset. He also gives his perspective on the cannabis industry, how it overlaps with industrial real estate, and why entrepreneurs should get into the space.
[00:01] – [10:19] Bringing Innovation as an Industrial Brokerage
- Daniel made the jump into this field after noticing that other real estate professionals weren’t providing the same level of service to industrial clients as they were to other product types
- Industrial properties are often overvalued due to the lack of accurate valuation methods
- Using 3D tours, drone footage, and other technologies, Daniel and his team are able to provide more accurate valuations and feedback from owners, which leads to better decisions when leasing or selling industrial properties
- There are a lot of things that impact the value of an industrial property: proximity to transportation, ceiling height, functionality
- Breaking down the sales volume vs the leasing volume in the market
[10:20] – [18:22] The New Frontier: Cannabis Real Estate
- With the developments in cannabis legislation, it is becoming a legitimate business
- There’s a demand for industrial properties from operators looking for cultivation space, and then once found, they must navigate city ordinances
- Other large companies are not yet willing to enter the industry due to the stigma
- There are plenty of opportunities because there is still less competition
- However, upon legalization, the artificially low supply will go away and the market might become saturated
[18:21] – [20:47] Closing Segment
- Daniel’s advice to aspiring investors
- Reach out to Daniel!
- Links Below
- Final Words
Tweetable Quotes
“You look at a marketing flyer or setup for something like a high-end office or even development, and they’re just beautiful marketing materials. And then I would get these industrial setups and they’re still black and white kind of grainy fax sheets.” – Daniel Tropp
“There’s real value in unlocking the real estate. So if you’re able to partner with a broker that understands those ordinances and understands where to look, then you can go in and buy something, and then stabilize it.” – Daniel Tropp
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Connect with Daniel! Send him a message on LinkedIn or Instagram at troppd@aebov.com. Visit AEBOV.com to know more about their work.
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Want to read the full show notes of the episode? Check it out below:
[00:00:00] Daniel Tropp: You know, my understanding is it’s federally still illegal to transport between states. So a lot of this supply chain, to get to the dispensaries in New Jersey, needs to come from somewhere in New Jersey. So everything, every use down the line, cultivation to manufacturing, to distributing products, delivery, retail dispensaries, that all has to be sort of in state.
[00:00:34] Sam Wilson: Daniel Tropp is an industrial real estate broker licensed in New York and New Jersey. He also works with cannabis licensees to secure viable space. Daniel, welcome to the show.
[00:00:44] Daniel Tropp: Sam, thanks so much for having me on. I’m looking forward to it.
[00:00:47] Sam Wilson: Absolutely. The pleasure is mine. Daniel, there are three questions I ask every guest who comes in the show: In 90 seconds or less, can you tell me where did you start? Where are you now, and how did you get there?
[00:00:56] Daniel Tropp: Yeah, absolutely. Pretty much been in real estate my whole professional life. At 18, I got into the residential side as soon as I was old enough to get licensed and toy around in that, wasn’t very good at it. So once I graduated college, I got, you know, more focused on the commercial side. I actually went to office lease leasing, which I did for two years, but also wasn’t really the best fit there. So eventually transitioned over to investment sales where things just sort of clicked, you know, mentally thebulb went off, and everything aligned. It was a much better use of my skillset and I’d been at some smaller and then mid-market, and then larger kind of corporate global shops over my career before two years ago, just really due to circumstance of the pandemic and everything going on, starting the company that I own now, AEBOV, really just focusing on industrial sales and leasing in New York and New Jersey and, yeah, haven’t really looked back since.
[00:01:53] Sam Wilson: That is fantastic. Tell me, you know, when you made that jump, what were the things that were clues to you that said, Hey, one, it’s time to go into what you are specializing in now. And then, you know
[00:02:05] Daniel Tropp: Yes, it’s a great question. As far as the confidence, I had done a few industrial deals over my career, but it was never really a product focus of mine. So I was either focused on markets, So areas in New York, areas in Brooklyn where I was just the territory guy and some industrial had kind of crossed my plate along with multifamilt development and everything else. So I had the experience, but I would notice the industrial brokerages really didn’t provide the same services to the market, didn’t add the same value I felt towards clients as some of the other product types. So you look at a marketing flyer or setup for something like a high-end office or even development, and they’re just beautiful marketing materials. They’re kind of elaborate, they’re laid out really well, and then I would get these industrial setups and they’re still black and white kind of grainy fax sheets, you know? So that was one thing. And then I also thinking about the way brokers offer valuations just as a foot in the door to our clients. I said, there’s a way to improve that too, as opposed to the hard copies, the books that brokerages would do, and it was just the industry standard. We can digitize it, we can put it on an online platform where owners can kind of interact and ask questions and we can plug changes in real time. So it was a combination of those ideas I thought. I just kept kind of honing in on industrial and saying, if we can do this with industrial, where it’s kind of a step behind, and we can build a nice website and offer these services and really modernize it, You know, industrial’s on fire now. It’s not just a great market, but it’s an increasingly sophisticated and kind of savvy market. It’s, it’s appealing to more and more investors. The timing’s right? It’s, you know, it’s going to work. So I just kept telling myself that and I, I think we’ve been able to add a lot of value to our clients so far using that.
[00:03:52] Sam Wilson: Let’s talk about industrial valuations here for a minute. When you were kind of, you know, given the, you know, the black and white flyers and things like that, it took me back to my residential days where you can get in and there’s platforms online, you know, especially as a broker, as an agent, where you can get in and you can add, okay, hey, maybe they didn’t accurately capture the square feet in the house, maybe they didn’t capture additions, maybe even though it might have been put through codes, there might be extra bathrooms and things like that that improve the value of the property. Is that kind of the same thing? And you can go in on the back end and add those in and actually see what a real market value might be, say, for that residential house. Are you saying that that same sort of piece is missing in the industrial side and you guys are able to come in and say, hey, wait, there’s ways to more accurately reflect the value that this property is?
[00:04:38] Daniel Tropp: So over my career, I’ve been in some really, really great shops. One common theme was the way we put a property out there will directly impact the end result for the owner. So I always believe that the aesthetic, it’s not meaningless, it’s important. So we started using 3D tours, drone footage, high def videos and we incorporate that right into this one-page setup. Now we call it a teleport. So, an investor can just hover over it and very quickly kind of be brought up to speed with the visual, which is really important still these days because a lot of people are working remotely or from the road or whatever case. On the valuation side, I think we miss less with this model because the old model of a broker taking the information, printing a hardbound book, going to the owner’s office, sitting down, discussing the property, well, if they missed something, or if the owner got an LOI between the time they spoke and the time they got to their meeting, what does a broker do? He takes out his iPhone and calculator and, okay, like, here’s the new value, and it was just the norm. So I get a lot of good feedback on the valuations that we do now because owners, as they go through it, will say, oh, you know what? I forgot to tell you about this. Actually, we underwrote a $15 rent a couple of months ago. I got an LOI for 18, or you know, I noticed this bill. So it’s an exercise for them too. And it’s normal. I think that as they’re going through it, they’re going to remember certain new facts about the property, and then we just incorporate it in real-time into our end. We have the presentation, which is spreadsheets. Nobody really loves to see that. On the owner’s end, they have a nice polished presentation with all the values and how we’re deriving everything. So it’s a cool product.
[00:06:25] Sam Wilson: That’s fantastic. And it’s always interesting how you can find innovation in an industry. You would think that, okay, you know, the industrial space, like there’s enough people playing in this space that it’s innovated out, but clearly that’s not the case. Tell me, what are some things that you’re finding that directly impact the value of industrial proper?
[00:06:44] Daniel Tropp: So, right now, especially since I think those two steep rate hikes in June and July, it’s definitely been a fight to quality. I think tenancy, which has always been important, is now more important than ever. We’ll see a really, really sharp premium on properties that are leased to credit tenants. I think proximity to transportation has become a lot more important. What owners here from their tenants is, you know, we’re getting crushed on gas prices, deliveries, everything else that we have to do, we’re too far from whatever market we’re in. So because of that, and I think gas has probably peaked back in May or June or whatever it was, but tenants are still very sensitive to it. And as such, I think investors are starting to pay attention to, okay, how far am I from the market with this property? How far are they from the highway? How good is the access? So that’s been something else that we’ve definitely noticed. Ceiling heights, again, always an important metric for industrial, but really important right now. I think with the way the functionality and the use of the physical warehouse space has changed from more warehousing and storage to the more modern use of get things in quickly, get ’em out quick, even quicker, right? So we need to maximize every inch of the space. So ceiling height and functionality I think is really important. The newer warehouses seem to be a lot more in demand than things that are a little bit more antiquated and tougher to retrofit.
[00:08:09] Sam Wilson: That’s really, really interesting. Now, you were telling me earlier, before we jumped here on air, was that the sales volume has been incredible compared to the leasing volume in your market. Can you explain that and how that, what the correlation of that and vacancy is?
[00:08:25] Daniel Tropp: Sure. When we started the company two years ago, we anticipated doing a good amount of leasing, but there really hasn’t been much because the vacancy rate is, I think, let’s take a market like New Jersey, maybe in the two or 3% right now, it’s October. But when you start looking, okay, I have clients that have very particular needs, so they need those high ceiling heights. They need great access. They need X number loading positions, and you bifurcate and take out that really high-caliber product. The effective vacancy rate of that newer product with all those features might be zero. So there’s just not a ton of leasing to go around. Where we have seen more opportunities definitely on the sales side, and I think we can be even more specific and say it’s been a lot of sale leasebacks has been owner users that are in some way, shape, or form, still impacted from COVID. Either they’re kind of busting at the seams and they’re doing you know, home repairs or home supply. Home materials, home building materials, or services for commercial real estate and they can’t grow fast enough, so they want to lease back with some flexibility so that they can scale up. Or on the other end, people that maybe are a little bit, like, closer to retirement, thinking about shutting down or their business has been impacted in a negative way, they’re scaling back, but they don’t exactly know when and where that’s going to happen. So they also want to monetize today based on where the market is and then kind of take that 1, 2, 3 year period to figure out their next steps. So that’s been a lot, I would say, most of the sale clients that we’ve we’ve seen.
[00:09:59] Sam Wilson: That’s interesting. I would not have tied those together. with saying that sales would increase with a decrease in vacancy versus leasing out. You know, again, I’m not in your industry necessarily or in the industrial industry. So I wouldn’t, you know, that’s just not the way I necessarily think about those things. But that’s really interesting. Thanks for taking the time to break that down for us. Tell me when it comes to cannabis. What are you seeing in that space? Is that something you guys are involved in? Is there an opportunity there? Walk us through that.
[00:10:29] Daniel Tropp: Sure. So it’s something we kind of got accidentally involved in about a year ago, more so in New Jersey than New York, where it’s a little bit younger, but the potential is there. Look, regardless, and I think the stigma around the country is changing, but even regardless of that, it’s projected to be a multi-billion dollar-a-year industry and it’s legitimate now. And you have all these uses in the supply chain that are coming to light. So as it turns out, there’s a huge overlap with industrial properties, which we have in our system kind of cataloged and we know all those owners anyway, so now it’s been kind of a nice thing to be able to go to them and inform them about this new potential use out there. In a market like New Jersey, for instance, the townships that opt in will then basically write their ordinance or their own zoning code for where the properties can be. So on top of the very low vacancy rate for industrial, let’s say there’s a cannabis operator that’s looking for cultivation space. Now you have to go look at which townships opted in. There aren’t many of them. And then once you find those, where does the ordinance define as far as properties that we can use? So you find those limited number of properties. Then you have to really understand, okay, which are functional for us, which are available. So the way the process works, it creates this very artificially low supply of actually viable properties. And that’s where it’s been exciting for us as brokerage s, on the brokerage side, ’cause we’re able to come in decipher these ordinances, tell our clients, you know, let’s take a look at X, Y, and Z townships we’ll go after the specific properties and the owners that are viable, and we’ll find you something. So it’s been more buyer and tenant rep on that side, but it’s the wild west right now. It’s like a new frontier and it’s really cool to be a part of it.
[00:12:12] Sam Wilson: That’s awesome. I want to hear more about that, but I guess I have a question. Why why would someone necessarily put a grow operation, and again, I’m not in the cannabis space, so if I use the wrong words, please correct me. But why would someone put a grow operation, say in New Jersey when maybe they could get somewhere further out rural, I mean, is it location specific? Why does it need to be in a certain area versus, you know, why would someone lease industrial space in New Jersey to put a grow operation in versus going somewhere out in the middle of the countryside and building a grow operation?
[00:12:42] Daniel Tropp: That’s a great question. I’m still learning it myself, and I’m not on the operation side, but I’m speaking to all these operators. You know, my understanding is it’s federally still illegal to transport between states. So a lot of this supply chain to get to the dispensaries in New Jersey needs to come from somewhere in New Jersey. So everything, every use down the line cultivation to manufacturing, to distributing products, delivery, retail dispensaries, that all has to be sort of in state.
[00:13:12] Sam Wilson: Got it. Now that clarifies things quite a bit, what do you see as the opportunity for the investor in this space? Let’s say somebody like myself wanted to come along and said, hey, Daniel, I want to own the real estate. I don’t want to be an operator. I’m not looking to start a grow operation, but I’m interested in investing in the cannabis space and helping that move forward. What would you suggest?
[00:13:34] Daniel Tropp: It’s a tremendous opportunity. I think it’s kind of parallel to why there’s so much opportunity for us as brokerages. As a broker, a lot of the bigger brokerages out there, the corporate sort of global or national brokerages, they won’t touch the use, whether it’s just stigma or whether they have a board to answer to with disclosures about certain things that they can get involved with or not federally. It is still an illegal drug, so right off the bat, most of the competition that we would face selling just a straightforward 50,000-foot warehouse from brokers. They don’t exist in this space. And similar for the buyers, for the investors, a lot of the bigger investors with institutional money behind them, with disclosures, with whatever else investors that they have to answer to, they’re starting to look at it maybe, but they’re still not really ready. So for the entrepreneurial-minded, sort of quicker nimble investor, I think it’s it’s a great space to plan and to look at.
[00:14:34] Sam Wilson: Do you see investors coming in buying a real estate than pairing up with someone like yourself and saying, hey, go find a tenant for us, or, you know, I mean, is that the way that works? Or, I guess, the real question is, you know, how does someone like myself get involved in that?
[00:14:48] Daniel Tropp: I think it’s twofold, right? We can find the real estate, there’s real value in unlocking the real estate. So if you’re able to partner with a broker that understands those ordinances and understands where to look, and you can go in and buy something, and then stabilize it, that’s a great plan. Again, because there’s a very artificially low supply, so there is real value there. And the users, I kind of, like, use the if you build it, they will come sort of analogy. The users, the operators, if you control the real estate, you’ll find them. And then on the flip side, wait it out a little bit and let the market kind of develop and get established. Let somebody else do the legwork, stabilize the asset, put in a good operator, and in time, I’m sure those opportunities will start coming to market too.
[00:15:34] Sam Wilson: Right. And I guess the risk would be in this, let’s say that, you know, maybe the operators currently are paying up for this space. I would assume they have to be ’cause there’s an artificially low supply and their excess demand, that means the prices are going to obviously be quite high. Your risk in that would be that maybe in the next two to five years, all of a sudden, you know, weed gets, I don’t know, you call it weed or pot, whatever, I don’t even what you call it, marijuana gets legalized and then all of a sudden, you know, well the artificially low supply kind of goes away. Is that a fair risk that I see in the space?
[00:16:08] Daniel Tropp: Yeah, that’s one. Think based on the political landscape in a typical whole period, five to seven years, and I’m not, you know, a lobbyist or a political guy, but I don’t think it happens. I think the window, most people expected that federally it would be decriminalized has kind of passed and it didn’t happen. So because of the way, you know, politics and the three houses are structured right now. I don’t see that as an immediate risk. I think the other risk is, do you want to be the investor that comes in, buys a property, vacant, takes on the risk, juices the rent, two, three, maybe four times fold, fourfold in some of these cases, and then have your exit? Or do you want to have someone else come in, take on the risk, bump those rents, and then come in and buy the stabilized asset?
[00:16:55] Sam Wilson: It could go either way. It can absolutely go either way. And I guess it depends on what type of investor you are and what your risk appetite is. I mean, one is more of the cash flow play and one is more of a spec play. I guess that’s the beauty and the risk of what it is that we do. That’s really, really fascinating. I mean, what would you estimate, you know, if it is such a niche product that you guys are, you know, locating, like how much of that is actually out there? Is it already saturated? Is it all already taken or is there still acquisitions to be had?
[00:17:27] Daniel Tropp: There’s still acquisitions to be had. I think very few townships, let’s again use New Jersey ’cause it’s just a little bit more established, opted in. But the thought process among like people in the industry is that once other townships that didn’t opt in see the benefit and the tax revenues and everything going on in those areas that did, more chips will fall. So I think for the foreseeable future, for the next few years, you will have this market that’s gradually expanding, which is a good thing. You don’t want kind of inactivity. And on the other end of the spectrum, you don’t want this just wide-open boom at the beginning where then things fizzle out.
[00:18:03] Sam Wilson: Right. No, that’s absolutely right. And I think you hit it on the head there where you said, once they see the tax revenues coming in, and that’s, I mean, that’s been one of the biggest drivers, just the economic side of it from, you know, from the political side where they go, Oh my gosh, like we’re missing out on just enormous tax revenues. Why not legalize it here?
[00:18:22] Daniel Tropp: Absolutely.
[00:18:22] Sam Wilson: Yeah, that’s absolutely awesome. Daniel, if you rewound your investing career or your brokerage career in real estate, what is one thing you feel like you’ve done really well that other people should emulate?
[00:18:36] Daniel Tropp: I can’t take credit for it again ’cause it was more circumstance, but, and I go back and forth over it all the time. You know, should I have left sooner and started going on shop? Or did I need that experience that I had to that point to have the success I’m having now and be able to build what I built now. So I think just at any point, having the chance to do something on your own, taking it, right, maybe it’s the dream all along. It wasn’t for me. I kind of fell into it, which worked out really well. But if that’s someone’s passion now, if that’s their dream, I’m always trying to tell people, look, leverage the relationship. Let me know if I can help at all ’cause I’d love to see you go out on your own. I’d love to see more people do it. I think it really sparks the market and gives like new purposes and new innovations and just brings about more for everyone, kind of raises us all up.
[00:19:27] Sam Wilson: That’s awesome. Daniel, thank you for taking the time to come on the show today and share with us. I’ve learned so much from you about the opportunity in the cannabis space, things that impact value inside of industrial real estate, what it looks like. You know, we talked a little about sales versus leasing and how they’re driven by vacancy. Learned a lot from you. Certainly appreciate it. If our listeners want to get in touch with you, learn more about industrial real estate in New Jersey and New York, what is the best way to do that?
[00:19:51] Daniel Tropp: By all means, anyone can DM me on LinkedIn or Instagram or shoot me an email. It’s last name, first initial T R O P P D @ aebov, A E B O V.com.
[00:20:05] Sam Wilson: Fantastic, and we’ll make sure, Dan, we put that there in the show notes. Thank you again for coming on today. Certainly appreciate it.
[00:20:10] Daniel Tropp: Sam. Thanks for having me. This was great.
