Clopton Capital CRE Podcast #2 Shane Giles

Clopton Capital CRE Podcast #2 Shane Giles

Shane Giles of the Giles Group joins us to discuss Nashville commercial real estate. We discuss how investors can get an edge, what areas they should be looking in, what assets are performing, and the general state of the Nashville CRE market.



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Jacob Clopton:  0:00     Hi everyone, and welcome to another episode of the Clopton Capital CRE podcast. Today we have Shane Giles. Shane is currently serving as a Managing Director of the Giles Group, a full service commercial real estate brokerage leasing and consulting firm. His experience includes management of over 600 commercial real estate locations throughout the United States and all commercial real estate asset types. So Shane, listen, appreciate you jumping on. Great to have you here. And maybe you just give us a little bit of background and intro on you and Giles Group and kind of how you got to where you are. That’d be great.

Shane Giles:       0:35     Absolutely! I appreciate you having me on. So I got my background really started when I was born into a family of contractors and investors and developers. So I was kind of born into it and introduced at early age and kind of grew up in that after I got out of the military in 2009. I got a college degree and move right into the commercial brokerage side. I did a short step $1 General corporate office and stepped in and just been plugging away. I started my own company, the Giles Group as of December of 2020, right in the middle of the pandemic, and doing well. I mean, it really seemed growth.

Jacob Clopton:  1:15     Good. So what was that like, kind of going off on your own during the pandemic? I mean, I assume the idea to go off in your own was happened before then. But time is not always perfect, so had to deal with it.

Shane Giles:       1:30     Yeah, absolutely. I think anybody in the brokerage business kind of has that entrepreneur mindset. So going out on my own was always in the back of my mind. The reason and the rationale for it at the time was really trying to serve the market better. Technology is kind of lagging behind in the brokerage industry, and I felt like I could do it better than where I currently was. So we implemented some technologies and started to grow. We’ve got three people working with us right now. As we’re doing it in the middle of a pandemic, by the time I started this, we’d already seen an uptick in the market after the pandemic was… Now the vaccine has started coming out at this time. So things have changed a little bit more comfortable about where we were then the beginning of the pandemic.

Jacob Clopton:  2:15     Right. What areas do you cover? Where you guys look at it?

Shane Giles:       2:20     We’re in Nashville, Tennessee. So basically, the Middle Tennessee areas where we really cover that will be Nashville, Tennessee, Brentwood, Tennessee, Murfreesboro, Tennessee in Hendersonville, Tennessee. Probably about a 30 mile loop around Nashville is our main area.

Jacob Clopton:  2:34     Okay, got it. And you guys cover brokerage leasing, got a consulting for any asset types located anywhere kind of in and around the Nashville marketplace.

Shane Giles:       2:44     Exactly. We really don’t do as much multifamily. We have had experience, but our strongest asset type is probably industrial flex. Well, we also do retail in some [unclear02:55] office space do.

Jacob Clopton:  2:56     Okay, got it. So I mean, Nashville, obviously, is kind of on fire right now. We done and are doing a bunch of deals in Nashville. What have you kind of seen in that marketplace? Kind of like, what happened during the pandemic? And then what’s kind of happened afterwards, like the general marketplace and the assets you guys cover?

Shane Giles:       3:18     Yeah, absolutely. So I’d say around February of 2020, when the pandemic hit, I think it did the same as it did in every other market. Everything stopped. The capital really dried up. If you were represented a tenant, the deal stopped, because they were nervous about what was going to happen. Well, landlords became very nervous about things. And I would say that lasted really up until about August of 2020. About that time, we started seeing the vaccine on the horizon. People started understanding how to live this life of distance. ZOOM became very common for these meetings. So we started seeing some positivity there. I would say about by about November, December, we saw a strong uptick. But I would say that office was lagging behind at that time. Industrial stay hot throughout the pandemic after I would say about May timeframe. The reason for that is I think it was probably January, February timeframe of 2020, we had a tornado come through Nashville. It took out about 2 million square feet of industrial property and then the uptick for manufacturing to begin with. It just really, really made it a feeding house on the industrial side of things. Now moving into 2021 we’ve seen an uptick in retail also. And office is still little soft. But the Nashville market, we just got an investment of $1.5 billion by Oracle, bringing in 8500 jobs. Amazon is committed to the area. They’ve already got some warehouses. So I think all that with the strong… We have a strong medical field here with Vanderbilt employing lots of people. I think, it really kept the market strong here and kept us in business.

Jacob Clopton:  4:58     Got it. Yeah, that’s great. We very recently did industrial deal in Nashville. And yeah, I mean, very strong, lots of great comps and asset values have really gone up. Great. So have you on the leasing side? You know, since the pandemic, have you seen like tenants wanting to write kind of like… It be like new covenants and leases that have to do with shutdowns or anything with a pandemic or stuff. I’ve heard other ways, and Reuters gonna talk about this. I’m just curious. Have you seen it happening in Nashville?

Shane Giles:       5:36     Yeah, absolutely. I haven’t seen it, but there’s many of the small mom and pop shops, but some of our Nashville retailers have definitely started inserting clauses in there that kind of provide some protection them, especially some of these, rent plus a percentage. You know, they’re trying to mitigate risk in these times where we do have a downturn. So I think it’s gonna become more common, but I think it’s gonna be more common with Nashville tenants, the ones that kind of have a little bit more leverage than the mom and pop shops.

Jacob Clopton:  6:06     Got it. So you’re seeing right like the Nashville firms, but are you seeing anything written in there as far as free rent or rent clauses trying to get built in, stuff like that?

Shane Giles:       6:16     Exactly. You’re seeing people try to write that in. Now for free rent, I haven’t seen quite free rent, but I’ve seen things like rent pauses in these kind of emergency situations and way to mitigate these before they even happen, if that makes sense. It’s really about limiting the risk exposure to a downturn of the market, it’s what they’re trying to do.

Jacob Clopton:  6:37     Got it. Okay. So they’re saying, “Hey, if we get shut down again. And we don’t want to write like have to come back to the negotiating table and like price monitoring somebody.

Shane Giles:       6:46     Exactly. But I think it’s beneficial to go ahead and talk about that upfront with the landlord, because really, truly the tenant, the landlord, and the brokers involved are a team. The landlord wants the tenant to be successful, therefore, he’s collecting his rent. And I think talking about this properly will help in the future, because we had so many tenants unable to pay their rent, kind of squatting because they were able to, and that hurt the landlord in the long run. So if we can talk about this upfront, get it worked out beforehand, I think it just works better for all parties involved.

Jacob Clopton:  7:18     Yeah, I agree. Is that mainly for retail guys? Are you seeing that for like office and industrial?

Shane Giles:       7:24     I’ve mainly just seen that in a couple retail leases, where they’ve tried to insert things like that, trying to really just hit the problem off before it comes. But I haven’t seen anything like that in any industrial or office. Office, like I said, still been pretty slow. Most office we’re seeing go through right now is a flat space. You know, a little bit of warehouse in the back and small office up front.

Jacob Clopton:  7:46     Got it. Yeah, I mean, have you seen…? I mean, I was I think industrial rental rates are holding up well and going up. What’s happening in the office space and retail space, as far as lease rates, and stuff like…? Are guys pushing back on triple net structure, stuff like that?

Shane Giles:       8:07     Yeah, absolutely. But not as much in retail. The market in retail here, vacancies already have gotten low again. It’s gotten very competitive again. So you’re still seeing that normal looking for some free rent up front. You know, that really depends on the term of the lease. We’re working on some 15 year leases. So we’ve got about a year’s free rent worked into a deal. So you’re seeing some of that, but all at all, the retail side of things here have been relatively strong since 2021. So you’re not seeing too many concessions, if that makes sense. But that’s why you always get someone, a professional that has seen those, who can actually give you a little idea of probably before we even get into the negotiations, where things are going to end up. Now as for office, it’s still probably one of the softest. So we have seen a lot more, I would say, three rent involved, a lot of TI for fixing up offices. But all offices still stay a little bit soft compared to retail. Retail really rebounded a lot quicker here. It’s gonna be interesting to see what happens with a lot of this office. You know, a lot of people staying home. I’ve seen some talks about going and converting to multifamily. It’ll be interesting to see. And that’s not just here in Nashville. You know, nationally, what people do with some of this excess office space. I don’t think we’re gonna see quite the volume of people going back to the office.

Jacob Clopton:  9:36     Right. Yeah. I mean, are you seeing like with new offices and you guys are writing… I mean, are you seeing smaller, on average spaces that people are wanting or shorter leases or something like that?

Shane Giles:       9:48     Absolutely. Everybody is wanting a little bit shorter lease these days and smaller space. I’m actually seeing a lot of companies do kind of a flex schedule where they only bring a percentage of their employees and per day. So you pick two to three days a week, and those will be your day. So they’re able to operate out of a smaller workspace, plus, it gives them the work life balance, time of family that they were looking for and wanting to stay home and work.

Jacob Clopton:  10:13   Right. Right. Right. Yeah. So I saw you guys, maybe, cover a little bit of hospitality. Are you guys seeing a lot of like business travel to the Nashville area? I mean, that’s one of the big parts of hospitality that like… We’re still kind of missing. Like business travel isn’t happening. It’s curious what’s going on in Nashville with like, conventions and business travel and groups and stuff like that.

Shane Giles:       10:37   Yeah, absolutely. I think hospitality, hotels have been affected, probably, more than most during the pandemic. The market is still a little slow here in Nashville. But we opened up and pulled the mass mandate off a couple of months ago. As far business travel coming in the area, it’s definitely coming in. But I would say more than that. It’s the tourism that has picked back up. Nashville downtown; very, very busy. So hotels are getting closer to capacity, which help everyone out in the business. So I would say, it’s probably a tourism thing here really driving the occupancy in the hotels for us more than a business travel. But I do believe that businesses…, We’re seeing a lot more tenants that we represent actually coming into town for site selection now and not doing as many things remotely. So I’ve seen an uptick in both the tourism, and the business travel. But being Nashville kind of a destination party town, I would definitely say it is our tourism that is really driving our capacity, our reach and our capacity of hotels.

Jacob Clopton:  11:43   Got it. Yeah, I mean, that’s one of the areas with business travel that I think, maybe, never died. We’re going to come back to… Anything with real estate. Like, I just don’t see how you really do a site selection without actually seeing. I mean, a drone video just doesn’t really capture the fulfillment, you know.

Shane Giles:       12:01   I don’t completely understand it myself. But I will tell you; we’ve actually closed a couple of deals where it’s been sight unseen tenant representation, because their rules or regulations within the organization wouldn’t allow them for putting an employee on the plane to go. So they were hands tied, but still wanting to open location. So it’s kind of a difficult thing. But overall, I would say most tenant rep deals we did, people put boots on the ground like normal. So I don’t think the business people really stopped flying as much as the tourists did.

Jacob Clopton:  12:35   Right. Yeah. I mean, it’s interesting that they had the rules to not do a site selection, because they didn’t want people there in person. But it’s a physical brick and mortar location, you got to have people in and bringing the conflict there is [unclear12:55].

Shane Giles:       12:53   Exactly. And I don’t think it would have been possible if they didn’t have experience in the market already. So they’d already had locations and areas. So they were familiar with the area. But still, anytime that I’m representing the client, it’s always when can you get here? When can you take a look at it? It’s really hard to look at the facts and figures on a computer and look at Google Maps and really get the full picture of what the building or asset is you’re looking at.

Jacob Clopton:  13:21   Right. I totally agree. So what were some of the challenges that you’re seeing? Maybe like some of the owners and investors you deal with in around that market and these asset classes? Like, is there any specific challenges that guys that have own property throughout the pandemic are still kind of having trouble, or like guys that are trying to enter the market? Right. Like, what are some of the biggest issues that you see some of these guys having?

Shane Giles:       13:50   Yeah, it’s really a two part. You know, if we go back to the beginning of the pandemic, people that were already established, and we were working on deals, it seemed like some of the capital dried up to get these deals done. I think we talked about a deal at one point, unfortunately, it fell through but it was somewhat difficult to get capital at that time. The second part of that is, landlords were going through this. You know, there was a significant amount of tenants that weren’t able to pay rent. So that really makes it hard for them to meet their debt obligations. So every month and then it just kind of snowballs from that point, the longer that people cannot pay their rent. So one thing I will say that was pretty good: “Our market wasn’t too soft.” So a lot of our tenants stayed in place. And that’s why our retail is probably doing as well as it is office, again, is the softest. And then the third part of it is investors trying to get it. I think, now with Nashville’s prices so high, it’s made it very difficult on the buy side. Being a new investor trying to get into commercial from residential or whatever asset you’re typically invested in, I think it’s really trying to… The big challenge is get your team together and show that you can take down that asset and manage it. You’ve got all your everything in a role, if that makes sense. I think that’s what a lot of lenders want to see now. And the biggest issue really is the price. It’s hard to get a good deal in Nashville right now. So I’ve got a question. If things keep going up, or where they’re going to be before we’re all sitting done with this, but I think if anybody could predict that, they would need to work anymore.

Jacob Clopton:  15:31   Right. I agree. So when you’re kind of like representing somebody, or the sell or buy side, are you seeing more movement kind of on the bids than the ass. You know, like sellers just not willing to really do any movement at all, or…?

Shane Giles:       15:48   No, what I’m really seeing is I’m seeing sellers really push prices way above asking price, even if that makes sense. So we’re seeing a lot of things get into bidding wars. So they’re really just pushing the price higher and higher. And it’s making it harder for a smaller investor to actually break into the industry, when you’re competing and got into a lot of industrial investors, really established investor. They have the tools or they’re able to move quicker. And you know, they kind of have a little bit more risk tolerance for that higher debt than some of the smaller mom and pop or newer investors, if that makes sense.

Jacob Clopton:  16:23   Yeah, I mean, I could certainly see that in industrial and we saw it recently. But I mean, are you seeing that in like retail, and maybe guys that are getting out of office, or somebody coming in to buy like an office building around there. Are you seeing the same sort of like, bidding wars going on?

Shane Giles:       16:39   Not as much in the office. We’ve seen a couple the big towers in downtown come in, get bought out. They know that office is going to pick back up. And it’s a good deal for them. Most of what I’m seeing bidding on is retail and industrial flex. Like I said, retail bounced up very quickly. Industrial just never went anywhere. I think that, like I said, was kind of the effects of the tornado and the pandemic at the same time really strengthen that market. So we’ve got a lot of industrial go in. We’ve got a lot of retail being developed. The only thing we’re not seeing a ton of still is office building, which, you know, they’re going to complete a lot of the offices that have already been going on downtown. I think, over the last couple of years, we’ve had about point two cranes up in the sky, which is pretty high for Nashville. We’ve had a lot of construction going on. So I think we’re kind of catching up. And then COVID on top of it, it’s going to keep it kind of flat in the office sector for the next couple years. Trying to predict any further in the future, now that’s going to be difficult, because we really don’t know how employers and employees are going to respond to going back to the office. That’s going to be probably one of the most interesting things for us to watch as we move forward. What percentage of the employees actually go back to the office?

Jacob Clopton:  17:59   Right. Yeah, I mean, I think there’s something to be said for certain positions that don’t necessarily need to be, I don’t know, like accounting or something. I mean, it just goes in. Any position, I feel like that you just go there and you shut your door, you don’t talk to anybody all day, and then you leave, you could probably do that from home, as long as you’re not the personality that are just gonna sit there in your underwear all day. But there’s just other positions that I think, right now, people think: “Yeah, I’ll stay from home.” But they don’t realize how easy it’s going to be in the future for employers to like fire them or kinda like what the upward mobility looks like when you’re not learning from senior guys at the office and the promotion. Who’s gonna get promoted, someone that’s at home all the time or somebody that’s at the office with the senior guys. So it’ll be… And I do think it’s gonna come back, probably like them, you know, near to medium term, but I guess there’s definitely right now a lot of pushback. And it was like a great migration of jobs. People trying to maintain that ZOOM lifestyle.

Shane Giles:       19:07   Absolutely. And you look at companies like Oracle that are putting $1.2 billion in the Nashville for a campus, moving their headquarters down here, they obviously believe that the office market is going to come back. They’re bringing their employees back. And they’re doing so successfully a lot of these locations too. So I think, like you said, short to medium term, we’re gonna see a lot of the occupancy rate go back up in office and the people that are investing in it right now, are probably going to get some of the best deals too, if that makes sense.

Jacob Clopton:  19:41   Absolutely. And so have you seen any assets in Nashville, like office assets being bought up to be repurposed into other stuff? I mean, you mentioned multifamily and certainly seeing like other assets kind of being converted from office.

Shane Giles:       19:58   Yeah, mainly what we’ve seen is office go into multifamily. It is the main use we’ve seen for it. There was actually a different conversion. We took on an industrial building to an office purpose, not long ago to which I was kind of surprised seeing this, but it was an area that didn’t really have it. So I think, it actually has been pretty successful. I haven’t followed it that in that detail. But I think they’re running around 90% occupancy already in it. So it’s kind of an interesting thing to see. It doesn’t really fit the mold of what you think should be working right now on the market, but it has worked. So anytime somebody tells you, they may know 100% what’s going on, they do not.

Jacob Clopton:  20:43   So what you kind of see in the future demand for the Nashville market? I mean, there’s certain neighborhoods around that marketplace that you think are up and coming and are going to be really the next pathway of development or what investor is kind of the working there to get in and find deals or like how did they do that?

Shane Giles:       21:05   Yeah, absolutely. So I think some of the best places to get in, if you’re wanting to get into the Nashville market would probably be East Nashville right now. It’s up and coming. We’re seeing, it’s actually becoming developed rather quickly, because the market has bounced back so well. It started before the pandemic, of course, but I’d say East Nashville, the outskirts of West Nashville in the Nashville’s area is a good area. And then anywhere down 65 and 24, interstate 65 and 24 include the Williamson County area, Franklin Brentwood, and then going down the 24, which is more of a blue color, the industrial corridor, anywhere in those areas, there are deals to be had. I think I would probably, if I had to pick, it would probably been going down 20 for the Smyrna and Lynburn. There’s a lot of thought areas out there around Nissan, North America, and places like that, that are really positioned to grow. They’ve got the jobs out there. And now we’re starting to see the residential really fill in. So I think you’re gonna see more and more people pushed out of the downtown Nashville area from affordability and kind of keep developing that area out. So getting in there beforehand is really the way to get ahead, if that makes sense.

Jacob Clopton:  22:23   Right. So you kind of look into like East Nashville, and then like the outer ring of the downtown area.

Shane Giles:       22:29   Exactly.

Jacob Clopton:  22:30   Got it. Okay. So like moving price points is going to push people out.

Shane Giles:       22:34   That’s exactly what we’re seeing happen right now. We’re seeing businesses kind of leave Nashville. A lot of people are wanting to be in the downtown area after COVID as much. You know, downtown kept a mass mandate for a long period of time. Just a couple miles outside of the city, things were very different, while rates were much lower. So we’re seeing a lot of people actually move out here from different states. They move to the outskirts of Nashville. They like there’s no sales tax here or no income tax here. They liked that the prices are a little bit lower on outside. The quality of livings out there is better. And then the commute is really short. So you’re seeing a lot of people move to the outskirts where it’s being developed and they have jobs, so they don’t commute as far, travel time is better, quality of life is better. And anytime this happens, it’s actually just driven the prices up outside of Nashville also. So we’re seeing prices rise out here too. So it’s interesting to see. It’s a growing city. It’s grown extremely fast in 10 years. I think, we had over 100 people a day on average flew here. That’s just people are buying homes, not people are sleeping on couches. So it’s growing very quickly. We’ve got Amazon coming in, Oracle coming in, we’ve had Dollar General expand, Tractor Supply expand, and then all the medical universities here. So it’s been exciting.

Jacob Clopton:  24:00   That’s awesome. Where are you seeing a lot of the influx coming from? I mean, I’m in Chicago, I see the kind of people from this area kind of go down there, but we’re not too far away. Are you seeing like East Coast or West Coast or…?

Shane Giles:       24:15   I can’t say East versus West or North. I’m gonna say where I’ve seen most of it come from are highly densely populated areas with higher tax rates and higher cost of living move here.

Jacob Clopton:  24:28   Right into that.

Shane Giles:       24:30   Exactly. I think what we see a lot of people want a higher, I would say, quality of life. You keep more of your money down here. It seems like you have just a little slower pace of life is what I get from most people that come here. They really enjoy that portion of it. And with COVID and everything, I think it forced people out of a lot of these cities too. We have businesses actually close up in New York and they move their businesses down here right in the middle of the pandemic, because they weren’t able to operate their business at all there. So they kind of folded the doors and found a place that was more pro business during that timeframe.

Jacob Clopton:  25:10   Sure. Yeah. I mean, I’ve seen a couple of our investors liquidating portfolios at Chicago and kind of moved out in Nashville. I do the same thing. So yeah man, I’ve seen more than enough around here. Yeah. So listen, I really appreciate all the great info man. Why don’t you tell me a little bit about like what you see for like the Giles Group in the future and where you guys are trying to go and kind of what do you see the future for yourself?

Shane Giles:       25:38   Yeah, absolutely. Hopefully, I’m still working with the Giles Group, if that happens, we close, of course, no. You know, growth is what we’re really planning on. 2021 has been excellent for us. We really plan on growth. We’ve hired on a couple new people. And we plan on expanding into a couple other markets include Memphis and Knoxville. And there’s some negotiations and talk of possibly opening an office down in Atlanta. So you know, really growth. We actually want to start moving towards the multifamily asset a little bit more. The problem is it’s extremely competitive. As you know, I’m sure right now pretty much anywhere you go multifamily. So that’s really what we’re looking to do is really grow the business and to be able to serve our customers throughout Tennessee and then start moving into a couple other states. Other than that, it really is just trying to provide that quality of life and work balance. It’s what we’re looking for throughout the organization. So all exciting things. Just hope things continue the way they have been, if that makes sense.

Jacob Clopton:  26:41   Yeah, I know, I hear it. It totally makes sense. So how do people get in touch with you?  If they want to chat about Nashville market, get your services, or just chat about deals in general.

Shane Giles:       26:53   Absolutely. My cell phone 615-714-8502 where you can reach me at [email protected]

Jacob Clopton:  27:02   Sounds good. Well, listen, I appreciate you Shane, all great information about Nashville and adding some good advice and information on what investors will be looking for going into the market. So let’s I appreciate you jumping on and hopefully we can talk again soon.

Shane Giles:       27:18   Perfect. Appreciate it.