Michael DiScala Talks Trends in Industrial, Retail and Multi-Family in Episode Three of the Real Estate Roundup
In episode three of the Real Estate Roundup, Managing Partner Eric Bernheim interviewed Michael DiScala of M.F. DiScala, a real estate company focused on purchasing and developing commercial properties – industrial, retail and apartments – in Norwalk and other markets around the country. Founded in 1923 by Michael’s grandfather and father, the company started as a residential brokerage firm, but Michael pivoted to his area of interest, commercial investment. The company also has a property management arm, Sedona Group, that his son John runs.
In the interview, Michael talked about the strength of the industrial market, specifically, warehouse space, which his company owns in several markets across the country. The company’s portfolio encompasses buildings from 5,000 to 1.2 million square feet, which, in some markets like the California, are now priced by the cubic foot rather than the traditional square foot. How much a building can hold horizontally impacts pricing as much as how much it can hold vertically. The California warehouse market is so tight, with rents increasing at 1.8% per week, that his brokers are quoting ranges in rent rather than specific numbers. Final rents are determined once the lease is ready to sign. Industrial, the strongest of the four commercial real estate property sectors, is often replacing underproducing retail developments and office buildings.
Michael shared that a challenge with investing in commercial real estate is that while it’s clear when to enter the market, timing an exit is not as obvious. He shared three factors that signal when it’s time to exit, which are indicative of the market today: 1) a significant rise in construction costs (we’ve recently seen a 20-40% jump), 2) a drastic increase in the land costs, and 3) a rise in interest rates, which appears to be imminent. These factors lead to reduced margins in the development of apartment buildings and an indication that development in this sector will slow down.
In the retail sector, brick and mortar strip centers have to contend with increased competition from e-commerce, which consequently is fueling the robust industrial sector. Michael explained that while strip centers with good visibility from the street, abundant parking, a good tenant mix and a traffic light for easy egress and ingress will always survive, the marginal shopping centers with limited parking, poor access, no anchors, and a poor tenant mix will suffer.
Michael feels that one of the greatest hurdles to commercial real estate development today is overregulation by the government. While some of their requests of developers are reasonable, many are not. Additionally, the changes in lending that occurred as result of the subprime residential meltdown continue to impact property types that were not involved in those lackadaisical business practices, making obtaining loans more challenging.
To learn more about the Michael and M.F. DiScala, we encourage you to listen to episode three of the Real Estate Roundup.