Five Questions With: Mike Giuttari

"We have a real lack of good, quality inventory for sale or lease. There is no new speculative construction, both due to the high cost of construction and the low lease rates for these properties."

(Updated, 10:23 a.m.)
Mike Giuttari, president of MG Commercial Real Estate Inc., leads one of Rhode Island’s largest commercial real estate brokerage firms. The company represents landlords, tenants, institutions and individuals, and also provides market analysis services. In a recent exchange, Giuttari discussed the market for industrial real estate, and explained why a lack of new development has limited options for companies seeking warehouse space.

PBN: You had 53 posted listings in May for industrial properties in Rhode Island and Massachusetts. Is the market increasing in activity locally?
GIUTTARI:
It’s generally the same number. It’s consistent. It’s stable in terms of inventory and the rental rates. [Generally, $3 to $5 per square foot for industrial properties].

PBN: What is available in industrial space? Can you describe generally what’s available for lease or for sale?
GIUTTARI:
Our industrial market is about a 50 million to 55 million square-foot market, depending on which buildings you count as “modern.” This number does not include the multi-story mills. Most of those are either converted to residential, razed or have burned down. We have a real lack of good, quality inventory for sale or lease. There is no new speculative construction, both due to the high cost of construction and the low lease rates for these properties. It just makes no sense, financially, for a developer to put up a spec building and expect to get $5 per square-foot. What is available are 20 to 30-year-old properties with lower ceiling heights that buyers and tenants, one way or another, make work.

PBN: What are companies looking for in industrial space? What do they need that they’re having trouble finding?
GIUTTARI:
Most of the time, if there is a physical detriment to a building, it is the ceiling height. Without any new construction this is what we generally have to deal with. As material handling equipment has improved, and allowed for easily using 25-foot and up ceiling heights, tenants and buyers are looking for that so they can pack more [materials] into less [floor space]. Other than a very few buildings that are currently available, Rhode Island just does not have any real supply of buildings with true ceiling heights over 20 feet. [Most of the modern buildings in Rhode Island were constructed in 1960s to 1970s.]

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PBN: Can you describe a recent, notable transaction?
GIUTTARI:
Two of our listings, 15 Wellington Road in Lincoln (150,000 square-feet) and 275 Ferris Ave. in East Providence (303,000 square-feet). Although both were single-level and had good loading [capacity], they suffered from the ceiling height issues discussed above. The Ferris Ave. site was empty and the Wellington Road site was occupied. The tenant at Wellington, Ardent Displays, which was already living with 16-foot ceilings, was purchased by an out-of-state company and needed to move and expand. Another client, Wildtree Herbs, was, at the same time, looking for 150,000-square-feet and had a few deals fall apart. We were able to sell Ardent Displays the 275 Ferris Ave. property, allowing us to sell their space to Wildtree Herbs. This created a 453,000 square-foot deal with a value of $7.6 million, all within a few weeks.

PBN: What do you advise clients when they want to sell a property?
GIUTTARI:
The first thing is to arrive at a mutually agreeable value, with some assumptions. Is the building structurally and mechanically sound, and what does the environmental condition of the property look like? Has there been a recent environmental inspection completed? Should the sellers get a Phase I environmental inspection completed, based on the past use of the property? Also, take a look at the property through someone else’s eyes. Clean it up. Although not as much as residential real estate, commercial real estate still has a little emotion attached to it when buying. What does that first impression say to a buyer? Has the property been maintained and cared for, or are there going to be hidden issues that pop up after the closing?

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