Industrial Investor Interest Shifts to Secondary Markets: Amazon’s Rapid Growth in Northeast Markets & More
by Brian Klebash
Leading commercial real estate and public sector executives convened for the The Third Annual Northeast Industrial Real Estate Summit, the recent installment in The NJ Commercial Real Estate Series, held on June 10 in Jersey City.
David B. Wolfe, Member, Skoloff & Wolfe, P.C
Demand dynamics for industrial real estate are changing rapidly in New Jersey, Pennsylvania and other northeast regions due mostly to the rapid growth of “Amazon Prime” and other online consumer-friendly retailers. Industrial developers and landlords are responding to the demands of these online retailers, specifically the speed-to-market challenge, the evolving warehouse footprint, employment trends and patterns, and the overall impact on the region’s transit system. How is the e-commerce fulfillment center different from the traditional industrial asset in terms of the type of footprint required, number of employees required to execute online sales, and the overall impact on transit in terms of number of trucks and delivery methods?
Adela Smith, Senior Research Manager – Northern New Jersey, CoStar Group
Expert speakers, representing the most active industrial real estate development and investment firms discussed important trends, patterns, opportunities and challenges, including: analysis of large portfolio sales around the nation; a potential industrial real estate market oversupply, the role of institutional investors in the national marketplace, new financing sources, and opportunities in burgeoning markets, such as Pennsylvania.
More than 300 attended who represented 154 of the most active industrial real estate developers, investors, capital sources and service providers.
Event Highlights & CRE Intelligence: Panel Discussion: Industrial Real Estate Institutional Investment Panel: REITs, Private Equity and Venture Capital Approach Opportunities in the Industrial CRE Sector
- Moderator: Michael Nachamkin, Managing Director, HFF
- Matthew D. Ascher, Director, Northwestern Mutual Real Estate
- Robert Corry, Managing Director – Acquisitions, Griffin Capital Corporation
- Matt Tucker, Managing Director, Gladstone Commercial Corporation
NJ Industrial Investment Perspective: Where are you buying, why, and how is the northeast industrial market comparable to other regions (Los Angeles, Chicago, Miami)?
Matthew D. Ascher
Northwestern Mutual Real Estate
We’re primarily buying in secondary markets and with B-quality property
So, the northeast, we’ve been active in the I-81 corridor, some New England areas. Mostly, we’re looking for the long-term durable cash flow from these assets. And so, we’re looking for –and we’ll take some credit risk to get there. But, we need a good stable income stream for seven years.
And the secondary markets, you’ll see a lot less activity. It’s a lot more spotty, a lot less liquid. But, for us, on our yield performance, that’s where we get our value to meet our goals.
Managing Director – Acquisitions
Griffin Capital Corporation
Our West Coast L.A. office, which is also our HQ, is seeing some extremely large transactions. They haven’t done as many transactions as the Chicago–or my office in New Jersey, but they’ve done some extremely large transactions, big dollars.
Chicago, Midwest, they’re plugging and chugging. They’re getting a lot of good build-to-suit opportunities. I think their deal flow has been–the pace has been steady.
I found, in the East Coast, and I cover everything from Maine to Florida that touches the water, that it’s been a little lumpy.
I’ve found some good smaller deals in the $29 and $30 million range and then a couple of larger transactions, but can’t really look down the river and say I see what’s coming over the next four to six months.
And talking with the brokerage community out there, they can’t either. It’s very much a month-to-month, day-to-day thing.
So, I think there’s a lot of things that are going on around there, at least on the East Coast, where you’re having a more entrenched base. You’re not just building out new build-to-suits, like in the Midwest.
A lot of companies are restacking, putting a lot more people in the same space. I have a company that literally–they had 900 people in their office building and, four months later, went through, and they restacked the whole thing, and they put an extra 250 people in there.
So, it’s going the other way as well. You’re getting some calls from your–some of your tenancy. And maybe there’s 2, 2.5 years left, and you get up to 3. And they’re telling you, “We only need two-thirds of the building.”
So, I think that dynamic and the dynamic of more people working at home or on the road, in hotels, and just thrown a tailspin into the regular dynamics of supply and demand because I think supply is coming more–you’re getting more supply from using space better, and demand is questionable because so many companies have so many–everybody’s not just growing, growing, growing.
And they’re looking at letting people work from home, hoteling, and lots of other different avenues in order to accommodate people, or use a lot more part-time people so they don’t have to bring in.
Gladstone Commercial Corporation
We’ve got to take a little bit of both, on the industrial side, both location and credit risk, to get where we can buy kind of seven cap and up.
But, even in what you consider secondary markets relative to New Jersey, Chicago, and L.A., so Columbus, Indianapolis, new build to suits with good credit are selling in the low sixes, sometimes breaking six.
And in most part, specifically, there’s a lot of land in those jurisdictions, encourage development by giving long tax abatements.
It’s hard to buy long-term income in some of these secondary markets because there are no barriers.
We will take credit risk. We’ll work with middle market businesses as tenants to help them solve the real estate problems.
We just did a build to suit for a company in Ashville, North Carolina, adjacent to their existing facility. And I don’t know if there are a lot of folks who do industrial build to suite in Ashville, North Carolina.
But, we took credit risk. And we got a 20-year lease. And we built it for 1 million. And we got eight or nine during the construction period. So, it works pretty well.
Exclusive NJ Market Intelligence: ‘Prime’ Industrial Opportunities? Analysis of Amazon’s Footprint, Including Distribution Center to Fulfillment Centers
A. Strauss-Wieder, Inc.
Ms. Strauss-Wieder has 35 years of experience in supply chain, economic analyses and policy development. Among her recent projects, she is one of the co-authors of the 2012 NCHRP re-port on Methodologies to Estimate the Economic Impacts of Disruptions to the Goods Movement System, developed a widely used “Freight as a Good Neighbor” guidebook, and helped develop and run the I-95 Corridor Coalition’s Freight Academy training program. She has produced the economic impact figures associated with the New York-New Jersey Port for more than two decades, walked through millions of square feet of industrial space, and is often at freight operations. Ms. Strauss-Wieder is active in several professional organizations. She is currently the President of the New Jersey Roundtable of the Council of Supply Chain Management Professionals and a member of NAIOP, the Transportation Research Board and the Women’s Transportation Seminar. Ms. Strauss-Wieder was a Leadership New Jersey 2010 Fellow. She has a BA and MA in Regional Science from the University of Pennsylvania. Prior to establishing her Westfield, NJ firm, she was the Principal Transportation Economist for the Port Authority of New York and New Jersey and worked for Conrail. For additional information >