August 9, 2013

Four on Friday: Larry Callahan of Pattillo Industrial Real Estate

On Tuesday, Aug. 27, Hartman Simons’
Summey Orr will moderate Bisnow’s
Annual Atlanta Industrial Summit
, which will be held at the The Ritz-Carlton in Buckhead.

In this
week’s Four on Friday, we chat with one of the panelists, Larry Callahan, CEO
Industrial Real Estate
, about the state
of the Atlanta industrial market, his career in commercial real estate and the
best advice he ever received. Many thanks to Larry for his time …

Lawrence Callahan Photo 07 09 13HS: What is your overall take on the
health of the Atlanta industrial market and how might that compare with the
sector nationally?

Atlanta is a
logistics hub, and it will come back strongly because it has the largest
airport in the world, three major interstates, intermodal rail and functions as the inland port for Savannah. As a region, we have underperformed
in job creation for the last decade and lagged behind the nation in recovering
from the recession, but Atlanta’s symbol is the Phoenix rising from the ashes. We are poised to surge ahead and regain our leadership position over the
next few years.

All the
logistical advantages of Atlanta are still present, and its leadership has been
focused on attracting the industries of the future. Bio technology (Baxter),
health care information technology (Athena Health), mobile communications
security (Airwatch), heavy equipment manufacturing (Caterpillar and Kubota),
automotive manufacturing (Kia) and aerospace manufacturing are all poised to
lead the way into a bright future for Atlanta. Real estate of all types is
available in the region at favorable prices. National and international
companies are recognizing this value and are pouncing on the opportunity. 

Some sources
are putting the national industrial vacancy rate at 11.8 percent, and King
Industrial just calculated Atlanta’s rate at 17.8 percent. We continue to
lag, but the key is to focus on the fact that the second quarter of 2013 had
the highest net absorption since the third quarter of 2007. We are moving in
the right direction and gaining momentum. For the first time since 2007,
we are actually seeing reductions in concessions and increases in rental rates.
The national average asking rate for industrial space is about $4.75 per square
foot. You can find space for substantially less in Atlanta, and big companies
know it.

Atlanta has
lagged behind in this recovery primarily because we were so dependent on
residential construction as a key driver of our regional economy. The good news
is that home prices in the Atlanta region have surged 20 percent in the last
year. Talk to your friends and residential real estate agents, and you will
find that buyers are going after existing houses with gusto, and those houses
are not staying on the market long. Before long, we will see prices rise to a
point where developers will actually start building new homes again. And that
will wake up all the entrepreneurs that supply housing with carpet, cabinetry,
plumbing, electrical components, roofing and lumber. All those people use industrial
space. We are certainly excited about the industries of the future, but we are also
excited about the resurgence of some good old-fashioned industries like homebuilding.

The Atlanta
industrial market is not yet robust. Investment sales are robust, and cap rates
keep compressing, but that is partly because demand exceeds supply for
investment-grade properties. On the other hand, we have seen a very gradual and
tepid recovery of demand for existing space since 2009. Recovery builds
momentum based on two key things: confidence and availability of money. We see
both of those things surging forward in Atlanta, and we believe that we are now
in the early stages of the up-cycle in industrial in the area. 

HS: What is the biggest thing that the Atlanta
industrial market has going for it in the near future, and what is its biggest

In real estate,
location and timing are key. Atlanta sits in the center of the most rapidly
growing region of the country. I would submit that our location is a long-term
strategic advantage enhanced by our investment in things like the new
international terminal at the airport. We still need to invest more in
transportation solutions to improve the flow of people and goods into and
through the city, and we need to continue to focus on the fact that water will
limit our size unless we use periods of high rainfall to save for the

HS: Tell us a little bit about your
career: what drew you to commercial real estate and how did you end up at

I was fortunate
to grow up poor. We had eight people living in a three-bedroom house. You
learned about teamwork, getting along with others and not wasting anything. I
learned that education and hard work would be the key to building a better
future. I started working when I was 6 years old. 

In my early
years, all I really wanted to do was become a professional athlete. It would
have helped if God had made me about a foot taller. 

I broke enough
parts playing sports (over the course of 30 seasons) that I had to shift my focus
to school. I graduated from Georgia Tech and then got an MBA in Finance from
Indiana University. I had 22 jobs before I got out of school.

Somewhere along
the line, I discovered that I was good with numbers. I started my professional
career with Arthur Andersen and became a CPA. My favorite clients were real
estate developers. I got a call from the Pattillo family back in 1985, and they
presented an opportunity to be a part of a company that makes a difference in
the communities that it serves. We bring jobs to communities, and I find that

HS: What's the best bit of advice you've
ever received?

On the first day
of football practice back at Christian Brothers High School in Memphis, the
team was gathered in a classroom with a blackboard. The legendary head coach,
Tom Nix, came into the room and turned toward the blackboard, picked up a piece
of chalk and wrote: “Priorities: 1. Your God (whomever you perceive him to
be.) 2. Your family. 3. Your education. 4. This team.”

He then turned
toward the team and said, “Gentlemen, these are the priorities of the men in
this room. If you understand these priorities, commit to them and keep them in
order, we will be champions.” 

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