#21 - Bob Chagares: Logistics, E-Commerce, "Small Boxes"

27:53And that made having more small box distribution centers located within and approximate to population centers essential to occupier supply chains. And then two more points in terms of this sort of evolution. The first is e-commerce returns or so-called reverse logistics. We could spend an hour on this topic, and we have spent a lot of time thinking about this. Generated the white paper back in 2015, nine years ago, thinking that things would really evolve fast as related to reverse logistics. But it hasn't. It's starting to again, and I think it's going to take off, and I'll talk about why. But suffice it to say, about 30 % of all goods delivered via e-commerce online to your house get returned.

28:39That is a huge issue for retailers. Very slow to set up adequate capacity, process those returns, and have lost billions of dollars. As many of these return items are thrown out for the most part, or some are resold for pennies on the dollar. These are not high-margin businesses to begin with. So you'd say, well, why in the world could that happen? I used to say, because nobody in any one of these places, Walmart, Target, wants to be the president of lost sales. and because the forward supply chain has been so kinetic for so many years that it's virtually impossible to send things back to the distribution center in which they came out of.

29:19You could go into a distribution center today and find a corner in that warehouse where they're just boxes laying, not in piles, not neatly stacked, but just laying all over the place. They're just waiting for, have enough of them to take them out to the dumpster and throw them out. And that's a remarkable thing. But the space demand, And if all retailers set up dedicated return centers would equal hundreds of millions of square feet overnight, most of which would reside in small box buildings where there's virtually no need for cube space, but rather just an operating system that can quickly move returns expeditiously on a horizontal plane from one end of the warehouse to the other to shipping to get it back out again as fast as possible.

29:59Nothing would be stored. It would be any in the warehouses that do this. Nothing's stored there. Everything is just in and out. And this is slowly happening for the reasons we talked about, but it's still slow to happen because the forward end of the supply chain is still so robust that it's hard to step back and want to devote time to that part of the operation. But at 30 % getting returned, that's not a sustainable long-term situation. And my last point would be e-commerce and overall demand for U.S. industrial and logistics space just changed investor sentiment over the years, and especially in the last four or five years, and the perspective on U.S.

30:40industrial logistics as a real estate sub-asset class. And just to illustrate that point, another one of my partners likes to point out that 20 years ago, if you attended a two-day real estate conference, it might only be the last 30 minutes of the second day after lunch that was dedicated to industrial. Today, industrial is first on the agenda. Even the non-industrial investors show up for that. And even the traditional non-industrial real estate investors have actually moved into this space in some form or fashion. Yeah, the changes are phenomenal. The vast majority of our listeners are not buying logistics or developing logistics.

31:18They're more likely to be consumers. So I'm going to try to restate what you just went through from a consumer standpoint and tell me if this sounds accurate. So I used to go to the store to buy what I wanted. Now I can go on my phone or go on my computer, go to Amazon or anything else like that and click and order what I want. And it shows up at my door so I don't have to leave and wait in line. I can just click and it shows up and in many cases it's cheaper. And so you had this gradual adoption through time as people who are more tech savvy were more comfortable doing that. COVID hit, everybody gets thrown into the deep end and they learn to swim and realize, you know what, this is actually pretty efficient.

31:57And you get more and more of that. And then as that demand grows, there's, okay, what more can I get? I want to buy more things online. I want them faster. And so this demand gets pushed through to the supply side and that business grows and has to adapt to that shift in demand. Is that roughly how it's played out? And if that's correct, what do you see as the next big inflection point? What's the next big step that this process takes? By the way, that was perfect. So I should be interviewing you. That conciseness was perfect. That next disruptor is already embedded in the overall disruptor that is e-commerce.

32:36And that started with digitalization, and that's AI. You think about AI that generates the algorithms that allow an Amazon or other retail marketing platform to know what goods to store in a distribution center within a particular population. Amazon already does that. have been using AI for a while, but it's getting more sophisticated in order to predict product demand to help keep inventory levels in check and avoid over or under purchasing for their warehouses. One of my other partners who lives in downtown Chicago tells a great story from a year or so ago when he placed an online order for eggs, Zyrtec, having allergy issues, and a dog chew toy.

33:19Within 45 minutes of placing his order, a delivery guy was at his door with one bag and three items. And he just said, you can't be here with my three items. And the guy gives him a fist bump and walks away. And you think about that, you obviously need a single distribution center close by that has refrigeration, a pharmaceutical section, and a pet section. That is a poster child for AI. And that is where that has evolved to. And it's evolving even further. Those algorithms are getting more sophisticated and it's tracking what that local population needs, wants, and orders 24-7. So really quick on that, are you saying that the technology can get to the point where maybe it's already there, where in some ways it can predict what you're going to want before you do?

34:06Well, I think if you go on to order something tomorrow and everything you've ever ordered seems to show up somewhere on that screen. That's just tracking. And then it's suggesting other things that it thinks you might like. And if you look at those things, you might say, well, yeah, I kind of like those things. Those things are interesting to me. It was funny. I was probably one of those guys going into COVID that I never ordered. I had my adult children move back for a period of time from Chicago and New York and just wanted to be in a safe environment with COVID. And And nothing that came through that door in those first six months was ever for me.

34:46I'd just walk out to the porch and pick things up and bring them in and put them down. I didn't have to look at the box. It didn't matter. I knew it wasn't for me. And then one day, I needed some new sneakers. And my daughter said, let me show you how to do this, Dad. So we went. I ordered a new pair of sneakers. They were there in two days. They were perfect. And I have been an absolute convert since. But I always thought it was interesting because I figured e-commerce wasn't for me. It was just for my family. To move on from that point, if you think about where AI has taken us through automation, these are intelligent systems that can navigate through warehouse aisles.

35:26They can locate specific items, can swiftly perform tasks like picking and sorting and packing. And you've seen incorporation of AI-powered robotics into warehouse workflows, and they expedite and improve productivity. They're better for safety and it can minimize human error. So there are a handful of very large, fully automated warehouses out there. These things, if you were to go into them, they're operating in the dark. It might be a million square feet and it's just these machines moving all over the place. There, they use those automated logistics solutions to carry out all the operations from goods receiving to the processing of orders and then dispatching them.

36:07Again, they operate basically in the dark and are characterized by minimal operator intervention and all their logistics processes. There are a few people there monitoring all this stuff. Interesting why those automatic retrieval systems, which are very sophisticated, have evolved to work in virtually any size space. And then they can even work in the back of a retail unit in a retail center where maybe you're doing some micro distribution out of. But the fully automated small box platform hasn't really happened. And I'm sure it'll evolve over time, but it's not there yet. And that's probably because, think about the outbound goods are going out not in any consistent size box, but going in an absolutely multitude of different size boxes, which then need to get onto a van.

36:52And that van load needs to be done and packed in a certain way that is sequential and also one that is easily managed by the driver and allows for some semblance of efficiency and motion to get through the run at a time. So for now, I think that's better managed by humans, but certainly these things are revolving. And I guess if you just continue along that path, it's all about getting things faster. And that's, I guess, the attraction to small boxes is you can fit the small boxes in that last mile closer to the neighborhoods that are going to demand these products arrive to them faster. And I guess that's like the next phase in this growth in logistics.

37:34Does that sound right? Yeah, the final mile phase has been the last piece of that evolution. And again, I'm sure there'll be other things. I mean, you can look, again, I mentioned micro distribution, you know, the concept of using retail centers to have some things available to look at and go try on. But there's still always going to be, I believe, the desire for a consumer experience. And to go in, see a number of things on display, because you might be looking for something in particular, but maybe you see something else that catches your eye. And I think human nature, I think, will drive us continually to some level to stores to look at things.

38:09But those stores are almost perfect locations for returns and for pickup and things like that. Not necessarily being delivered, but also for you to go get an experience and either pick up and deliver things you want to return or you want to take with you. So the small box end of this really is important historically. And this is why those absorption ratios are so different. one to one to one on small box and 1.3 to one for big box. And that's because when markets improved in their recovery phases and heading to peak, all industrial bulk assets were built somewhere out on the market periphery, outside the beltways, out in some cornfield somewhere, where land was cheaper, where there might've been some tax abatements and things like that, and where it was obviously not scarce.

38:59And it wasn't really a need because you could take your time getting that to somebody. Nobody was looking for it. You ordered something, got there a week or two later, you're like, great, I finally got my X. That's changed. And so now you're trying to fit into these sites that are infill, trying to find the smaller assets. But by the way, 16 billion square feet of inventory across all markets in the US, Roughly 60 % of that is under 200 ,000 square feet. That was always a vast majority of what was built. That was the basis of industrial logistics, real estate for years and years. The big box stuff was the big nuance change where we started putting things into these million, million two square foot buildings.

39:44So largely the new buildings are all big buildings. And that's been the last 15 to 20 years. for new builds, that's largely what was being built. Today, in our strategy, we're looking to build the small buildings and the small boxes, in addition to buying existing boxes, and either they work or we're doing some sort of extensive renovation to those boxes to improve their functionality or be able to install some technology that makes them work better. So I think as we think about, maybe that's a context, I would say that our investment strategy has been consistently focused on, exclusively focused on small box assets for the last 15 years.

40:29And again, just to note, our average building size over 22 years for an existing box that we buy is about 125 ,000 square feet. For the buildings that we build, it's about 180 ,000 square feet. So we're staying small, even on the new delivery side. I mentioned this, but the starting point for our strategy really started with data that continues to support the investment strategy that we're in today. And the top line is that historical vacancy and absorption highlights that there's less volatility in small box assets versus big box. And specifically, we've been tracking data monthly on a 10-year rolling basis since 2011.

41:13and the average annual vacancy rate for small box assets from 50 to 300 ,000 square feet is 150 basis points lower than for big box assets over 300 ,000 square feet. And the supply-demand ratio, which I mentioned a moment ago, is one-to-one for small box and 1.3 to one for big box. The vacancy gap today is between 300 and 550 basis points, and I'll touch on that in just a second. So the benefit of exclusively investing and operating in this small box asset market, we think, is reflected in our overall rent growth across our Core Plus Fund series, which today consists of Fund 6 and 7. We just launched Fund 8.

41:56But we saw an average rent growth over the last five years of 38.5 % annually. And that includes rent growth of 38.8 % in 2023. and rent growth in Q4 of 2024, it's been 37.7%. So it hasn't diminished over that time. And I think just, again, reflects the high cost of and scarcity of infill land in our targeted markets, where there's just consistently less new construction, again, historically lower net absorption ratios, and then yields, which are historically higher in the sort of less efficient, smaller building marketplace. The value is also enhanced for two other reasons. And one, because individual small box assets are just generally underpursued by the larger institutional investors for reasons we talked about earlier, it's just deal size.

42:47And then two, on the flip side, they want access to these portfolios of small box assets and now aggressively pursue them with their larger funds. And it puts them into all ends of the continuum between sort of first mile to last mile. but they can't and won't go focus on one-off. One of my friends in the industry was with a very large group and they actually hired a handful of people to go do small box investing. So we did it for about four months and we said, nah, we can't with too much money to place. This doesn't work. So that was the second piece of that. But if you kind of look at the fundamentals, and this goes hand in hand with sort of where rent growth has been, we're seeing generational fundamentals remain and strongly favor sort of small box over big box.

43:33Obviously, we like the end of the market that we're in, but that's highlighting a bifurcation that's really occurred in the last few years between big and small and then the bifurcation that we've been working to leverage for the last 15 years in our investment strategy, but now on a much more significant scale than what we've seen over that time. This isn't forever, and I'll touch on that. But from our perspective, again, it's entirely consistent with the historic performance of small box properties. and it shows up in the current vacancy rates. Coming out of 2022, we were at 2.9 % vacant across 59 markets tracked in the US.

44:09We like to use CBRE statistics. Coming out of 2023, we were at 4.8 % vacant for those same 59 markets. At the end of Q1 2024, we'd increased to 5.3 % nationally. However, vacancy for buildings between 300 ,000 and 700 ,000 square feet rose from 6.6 % at year-end 2023 to 7.5 % at the end of Q1 2024. And vacancy for buildings over 700 ,000 square feet rose from 8.2 % at year-end 2023 to 9.1 % at the end of Q1 2024. And here I note that because of that increase in vacancy, we expect to slow down in a rate of rental growth for those big boxes. Now, compare that with smallpox, where vacancy for buildings under 150 ,000 square feet was 3.5 % at year-end 2023, which in our view is just structural.

45:07There was just an awful lot of product in that grouping that would be functionally obsolete or environmentally tainted, and then remained slightly above that at 3.6 % at the end of 2024. So I think that really does underscore that. And that was predictable. If you look at 2023, we had record construction deliveries of 612 million square feet, but the building size was largely over 300 ,000 square feet. In fact, almost 70 % was over 300 ,000 square feet. And if you include buildings 200 ,000 square feet and over, it was 85 % of total deliveries. So very minimal amount of space was delivered in new construction under 200 ,000 square feet, and hence these vacancy rates.

45:52At the same time, there's ultimately a good news story just for the sector overall, and I think in for a larger box. While construction starts, they decelerated in 2023, and that was reflecting a combination of high interest rates, a less robust lending environment, and then just less demand from big box occupiers. While those record deliveries caused that substantial increase in vacancies, now construction's declined by 52%, probably in this year going to 60 to 70%. And that's really set the market up for a significant shortage of big box first generation space for late 2024, 2025 and going into 2026.

46:31And personally, I think the economy will be more certain by then. The rate environment will stabilize. And I think that'll allow the big box market to recover. And if you look at CBRE's projections, by the end of 2025, they project that vacancy for the entire national footprint will be back right in the low fours again, which is going to sort of restart the entire upcycle for the industry. So that piece, But I think in the interim, and again, going back to this push for same day, same hour delivery by e-commerce companies, that just continues to fuel demand for our infill small box. And it's even been beneficial in new box development.

47:10It's made the lending environment, which hasn't been there for the bigger box construction, but has made debt available for smaller boxes just because there's a perception of they're less risky because they're smaller bite sizes. So we've been able to get debt. And then all of this, and the reason for rent growth remaining durable and kind of looking at it long term, not only in our small box, but ultimately in big box, is that rent as a percentage of an occupier's spend is only 3 % to 6%. And that's in spite of all the incredible rent growth that we've had as an industry and even in our smaller boxes.

47:48And it's been at 3 % to 6 % for five years. It might have been 2 % to 5 % going back 10 years. That was always the lowest component of the spend. But that tells you how much all the other costs have accelerated, especially transportation, which is up to 45 % to 70 % of an occupier's spend. So as a result, and we're seeing it in our own rent numbers, there's been almost a price inelastic environment for small box rents. And that the interesting part of that is to address rising transportation costs. The emphasis is on having even more small box distribution centers in more locations closer to population centers.

48:27So to us, we think the higher growth environment, rent growth environment will persist for the foreseeable future. It's really interesting. If you think about the demand from the consumer side, it seems pretty clear that that's not going to go away. Once people get used to ordering online and then receiving it quickly, especially as the delivery time improves, that's something you can't reverse. So the demand seems to be there. And as you've described, there's an undersupply that hasn't been able to keep up with that demand, particularly in small boxes. Is it difficult to enter that small box space you touched on a little bit?

49:04And is there a material early mover advantage for those who provide those small boxes? It's interesting. Clearly, the last couple of years have shown that if you have capital, you can enter the U.S. industrial logistics space. We've seen retail, multifamily, and even office fund managers enter the space simply because it's been so strong and is now fully accepted and highly desired asset class by institutional investors. And also the returns are just there on a comparative basis, really above any of those other asset classes. So in my view, the early mover advantage already resides with investors like High Street who have been in the space for many years.

49:46And it's interesting. I think there's a perception that industrial logistics is just less complex than, say, office, retail or multifamily. And at some level, that's true. After all, we're investing in building boxes of various sizes. They're not particularly or don't appear to be very complex. But there are a lot of things to understand about the nature of logistics and supply chains and really whether a given building in a given location is a better investment bet than another. And for example, you may have a very well-located asset, but physically it just doesn't work that well. The clear heights, which are the distance between the floor and the underside of the truss that supports the roof, may be just too low.

50:29You can't really do much with it other than move things around horizontally. truck turning radiuses. We're still operating in this country on a 53-foot tractor trailer module, transportation module. In fact, that's probably what hurt, well, a lot of other reasons that hurt the deal going into these multi-story buildings going into urban areas. But it's very difficult to get around urban streets with those 53-foot tractor trailers. Europe is on a much smaller, they use a much smaller truck module, which is why even in some of the Asian countries, China, Japan, multi-story industrial works very well.

51:08But in addition to that, just loading configurations, whether or not there's enough of a truck court or whether the truck court includes the street, that could make a building undesirable. The column spacing inside the building, if you're on a 20-foot module, which a lot of the old buildings were, it makes it very difficult to put modern racking systems in and using the modern machines to go pick the product off those shelves. Ingress and egress, a lot of times it's just efficient. Trailer parking today, people want places to drop trailers. That way they have empties that are available right away that they can use.

51:41So at the end of the day, technology has driven some very specific requirements for what works and what doesn't, particularly with new ground-up development. And then kind of going back and just talking about clear height and why that matters. 20-foot clear heights were commonplace before the 1980s. Industrial buildings have just become taller and taller in recent years. And today, newly constructed assets and the ones that we build that are 150 ,000 square feet and above have clear heights of 32 feet to 36 feet. E-commerce users in particular, they are really looking to maximize the efficiency of distribution operations and storing more product within the same building footprint is a clear win.

52:22If you take a look at a 100 ,000-foot warehouse, so that structure offers an internal clear height of 30 feet, the building essentially has 3 million cubic feet of space for capacity. If that property has 36 foot clear heights, then the capacity is 3.6 million cubic feet, which is 20 % more. But you pay for industrial space by the square footage of the building interior floor. So a couple of ways that you can really get the most out of an industrial building, unlike an office building, you can run three shifts. So you can run that operation three times a day, eight hour shifts to maximize the productivity coming out of that asset.

53:03So the importance of clear height and being able to operate 24-7 is virtually all new distribution centers intended for infill or last mile are built with clear heights in excess of at least 28 feet, but typically 32 to 36. And again, that allows for not only multi-level racking systems, and we could spend a lot of time on that because pallet sizes matter and sort of how far you can rack and how much you can rack, but also for sorting and picking operations, which are critical to the e-commerce last mile. So for small boxes, you just have to consider a number of factors to determine what the right clear height might be.

53:42Taller might not be better depending on the use of the user, but tall is always right. So whether it's 28, 32, or 36, all those things matter. And then finally, and I think just to talk about the early movers or people coming into our space, and I think this is just inevitable, but newcomers to the market are either forced to chase yield, maybe acquiring less than B assets or buying in tertiary markets or sub-markets or buying less desirable and even some flex space. Or if they're viewed as a credible buyer, and let's say it's somebody that's a big time multi or former office group that has deep pockets, that group might end up paying the most in a full auction bid, which might just be way too much in order to win that bid.

54:26So there's lots of reasons why I think the ship has sailed. It doesn't mean there's not room on a market that's as fragmented as ours, but I think the early mover advantage has left the train station a long time ago. And so once you either buy and modernize these buildings or build it from the ground up, what's the exit strategy? How do you sell them who are typically the buyers? As part of our risk management, I just want to put this up front, we underwrite every property we buy or every small portfolio we buy to sell as an individual asset. So we end up selling one-off assets or small portfolio of assets when we've executed the business plan for the asset.

55:05And when we think we can sell it, achieve our underwritten return, and importantly, our underwritten multiple. In doing that, we avoid underwriting assets to sell as part of a large portfolio, because one, that would make us an aggregator, which we are definitely not. And two, you're assuming a portfolio premium in your exit that would probably allow you or incline you to underwrite at a more aggressive exit cap, which we think is fundamentally terrible from a risk management perspective. So that said, we'll generally exit around 25 % of a given portfolio one-off, really pruning it to get to the most homogenous grouping of assets we can have, and then look to see if there's a portfolio sale opportunity, where there might be a large portfolio premium available in the market at that time.

55:54And a lot of that, Alex, gets driven by debt. Today, the CMBS market just woke up at the end of last year. It was non-existent. So all those deals that got done two, three years ago, billion,$2 billion type of portfolio sales, there's been no debt available to make that work. The CMBS market is back this year. I think there's been almost$7 billion done. A lot of it's been done by Blackstone. But you got to have debt. So the debt that's available in the market sort of matches up with what you can go sell. Today, the sweet spot in the market across all lending is probably still$25 to$75 million.

56:31There are some deals getting done that are bigger. But once the lending market really begins to recover, rates settle wherever they're going to settle to, and the leverage starts to turn positive from what is largely negative today, we'll see the portfolio opportunities come back. But for the moment, we look at our portfolios, our Fund 6 portfolio, which is 2019 vintage. We've done a lot of great work there. We've had tremendous amount of rent growth, a lot of lift in the overall, what would it call reversionary yield that we look at every year, which is NOI over our initial basis has grown substantially.

57:09But you kind of have to wait and see. Looking back on Funds 4 and Funds 5, we did sell. After selling roughly 25 % of each of the assets, 25 % of the assets in the portfolio went off. We then sold the balance to Blackstone and KKR, respectively. And the premium in each was in excess of 300 basis points above our targeted net return. One topic that we've discussed in the past is our cycles. And I know you believe in cycles. You've seen many in your career. Would you talk to us about that and why you think these cycles are destined to repeat over and over again? I always like to say, and with probably too much age and maybe not commensurate wisdom, that I just don't believe in paradigm shifts.

57:56I do believe in cycles, as you said. And while this sector cycle has been a very long one to date, driven largely by technology, and while I believe it has more years to run, it will eventually cycle down to the less dramatic. But for now, the runway looks long, clear, and promising to me. But all of this is happening within the macro cycles that flow like waves to the shore. They're perpetual and repetitious. And while we're experiencing this elongated cycle within the U.S. industrial sector, which has survived and thrived through COVID, high rates, capital markets dislocation, the sum total of those things would still weaken considerably if we had another recession like the GFC.

58:37The difference is that technology tends to drive certain industries back to life faster than might have been imagined when the downdrafts initially started, which was entirely the case with the logistics sector. And by the way, the first mentions of a paradigm shift occurred back in 2006, 2007 in our world, when capital-driven momentum buying was aggressively pushing cap rates down and values up, but without any corresponding real estate operating fundamentals. It was just all momentum buying. And we kind of know how that worked out. So while tech could be the basis for touting a paradigm shift in our business, in my view, there's simply a cycle out there.

59:18In this case, it is an end of the hyper growth and product development sort of sitting out there today. And I think that will largely correspond, and I mentioned this earlier, with e-commerce as a percentage in non-auto retail sales hitting its inflection point. I think that will mark the end of the cycle in logistics and real estate until some other technology allows that to sort of re-manifest itself in growth against as a percentage of retail sales. You just talked about one of the key risks to this secular tailwind in logistics and e-commerce and that whole dynamic. Who do you anticipate to be the big winners and losers of this secular tailwind as long as it lasts?

1:00:04retailers probably won't do well. Oh yeah, logistics, real estate over retail, real estate and e-commerce over pure bricks and sticks retail. And I think the loss is already there and I don't think it improves at the margin. I think it might get slightly better. Been a lot of work done by retailers to just inject more entertainment into their physical assets. And I think that's great, but I think it's gonna be the few and further between rather than the norm. I think the super centers, outdoor retail, the high-end malls, I think they all continue to survive and do pretty well. There'll be bumps and bruises here and there, depending on how well a particular retailer is doing or if an anchor suddenly has financial issues.

1:00:49But I think that's the biggest one. And then I think losers may also include companies that don't figure out how to master reverse logistics, because that 30 percent is obviously not a static number. It's on a higher and higher nominal amount. And so it just gets to be too much. And I think that would be the other group of companies that I will see as losers in this logistics realm. This has been great, Bob. I just want to end with one question that I ask many of the guests. Is there a unique insight that you'd like to share? Obviously, your expertise is in commercial real estate, industrial logistics.

1:01:24Is there a unique insight that you'd like to share with our listeners in your area of expertise? You know, I won't even attribute it to myself, but one of my colleagues made the comment that we really do need to future-proof our buildings. And this does sort of tie back to everything we've been talking about. And, you know, as we build our next-gen small box buildings, you know, our goal is to the best we can anticipate the future needs of tenants. And so it enhances the term future-proofing. I love that term, providing the physical building attributes that we think will be just as valued 10 to 20 years from now as they are today going into these new buildings.

1:02:00And these include, again, high cube space, allowing for greater storage of goods and distribution, leasing flexibility, having these generous truck cords for a high degree of maneuverability, trailer parking, trailer drops, and then sustainable components like cool roofs, the ability to install solar to create either community solar or solar specifically for that building, low flow fixtures, and high efficiency HVAC units, and really abundant power. Power is just important, and it's been strained by the rise of the data center and AI, which uses an extraordinary amount of power. So any building we build and construct has to have abundant power and maybe, again, power for the future beyond for systems within the building that might be AI systems that are going to need to draw more amperage.

1:02:50So those are the things that I think from an insight in investing, those are the things I think we need to do. end of the day, we want to look and then we also want to acquire assets in locations and with attributes that we think tenants will want for the next 20 years. And we've been doing that for the last 20. That's very interesting what you just said, because the buildings that were constructed 20 years ago, they were forward thinking at that time, but all of that quickly became outdated. And you just want to make sure that what you're putting in the ground today is not outdated five, 10 years from now.

1:03:23And so you really have to look at it through that lens of what does the next 5, 10, 15 years look like? And a lot of that is dependent on your understanding of how the space has evolved through time, what the potential is, and really thinking ahead. It's not easy to do. No, it's not. And we are not holding a less cloudy crystal ball than anyone else in the industry, but we all do our best to try to see through that as best we can. Bob, this has been great. I learned a lot listening to you. I think it's an industry that we all touch as consumers, and it's really helpful to see behind the scenes how it works and potentially where it's headed.

1:03:59So thank you for taking the time. Absolutely. Thank you for having me. Thanks for listening. We hope you enjoyed this episode. Please visit our website at insightfulinvestor.org to access past shows and learn more about our podcast. If you have questions, feel free to email us at info at insightfulinvestor.org. And if you enjoyed the discussion, please subscribe to this podcast to ensure you don't miss future episodes. And don't forget to forward today's conversation to others you think would enjoy listening. This podcast is provided for informational purposes only and should not be relied upon as legal, business, investment, or tax advice.

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