Category: Industrial

KKR’s Fast-Growing Warehouse Arm Lands $894 Million in New Debt

Alpha Industrial Properties secured a $690 million CMBS loan and a $204 facility from an affiliate of Invesco Ltd.

(Bloomberg)—KKR & Co. has refinanced its U.S. warehouse business, Alpha Industrial Properties, with $894 million in new debt.

KKR’s platform, which has made 40 acquisitions since May 2018, raised $690 million in commercial mortgage-backed securities in a transaction led by JPMorgan Chase & Co., according to Roger Morales, the firm’s head of commercial real estate acquisitions in the Americas. It also raised $204 million in a separate facility from an affiliate of Invesco Ltd.

“We have a lot of conviction in the sector’s drivers and expect to be significant investors in the asset class across a number of our real estate strategies,” Morales said in an interview.

Warehouses have become a hot asset as consumers increasingly embrace the convenience of e-commerce. Real estate-focused private equity funds have been vying with the largest real estate investment trusts for large portfolios of the properties.

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The U.S. Warehouse Sector Won’t Be Able to Escape the Impact from Coronavirus Outbreak

Phoenix reports highest year-over-year gains in December

U.S. home prices increased 3.8% in December from a year earlier, a faster pace than the prior month’s 3.5%, according to S&P CoreLogic Case-Shiller National Home Price Index.

Measuring the nation’s largest urban areas, the 20-City composite index rose 2.9% in December from a year ago, faster than November’s 2.5% pace, according to the report issued on Tuesday.

Craig Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices, said the housing market continued its trend of stable growth in December.

“At the national level, home prices are 59% above the trough reached in February 2012, and 15% above their pre-financial crisis peak,” Lazzara said.

According to the index, Phoenix; Charlotte, North Carolina; and Tampa reported the highest year-over-year gains among all of the 20 cities.

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Highlights from Cushman & Wakefield’s North American Industrial Outlook

C&W expects the North American industrial market to remain one of the leading product types to watch.

Cushman & Wakefield recently published its 2020 North American Industrial Outlook report.

The brokarge firm forecasts North American industrial absorption in 2020-2021 will be a healthy 459.9 million sq. ft.

Industrial has arguably been the hottest commercial real estate sector in recent years. And signs point to that run continuing at least in the short term of the next two years.

Some highlights from C&W’s findings include:

  • Supply levels are projected to reach 573.4 million sq. ft. from 2020 to 2021. Nonetheless, vacancy will remain anchored around the 5 percent mark.
  • Asking rents are expected to increase by 6.8 percent and reach a new nominal high of $6.95 per sq. ft. by year-end 2021.

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Proximity to Rail Service to Play a Bigger Role in Industrial Site Selection

As rail service has become faster, industrial developers are increasingly considering rail access in site selection.

A growing truck driver shortage, along with improved efficiency of U.S. rail operations, has more shippers considering rail transportation as a viable alternative to long-haul trucking. As a result, some developers are placing new industrial development projects adjacent to rail access sites.

Industrial developers and investors are considering the advantages of rail access when choosing locations for new projects, says Tray Anderson, who heads the logistics and industrial services platform in the Americas for real estate services firm Cushman & Wakefield. While rail access doesn’t drive location decisions, it has become a risk mitigation strategy, offering an alternative to trucking if the driver shortage escalates.

Rail’s efficiency, safety, cost savings and superior delivery windows are widely recognized, says Reagan Shanley, executive vice president of industrial development at Denver-based The Broe Group and its affiliate OmniTRAX, a railroad developer/operator that connects businesses to class I railroads nationally. A 2018 American Trucking Association’s study found that moving products by rail was 45 percent less expensive per ton than shipping by trucks. The exceptions, according to Anderson, include non-competitive destinations only served by one rail line and seasonal shipments of agricultural products, when pricing escalates.

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Eight Predictions for the Industrial Sector in 2020

Industrial properties have been highly sought-after by investors for the past several years. Will that trend continue in 2020?

New project deliveries, continued cannabis legalization, a decline in manufacturing, faster e-commerce deliveries and the upcoming presidential election will all have an impact on the U.S. industrial sector in 2020, experts say. Here are eight predictions for the industrial sector in the new year:

1. The rush to cannabis production will likely accelerate in 2020, as more states legalize marijuana for recreational use, attracting investors to the higher returns cannabis-related real estate provides compared to more traditional property types, according to Chuck Taylor, director of operations for Englewood Construction, which collaborates with cannabis firms on cultivation and dispensary projects.
2. Demand for “last mile” warehouse space will continue to grow in 2020, as consumers demand same-day and next-day delivery and retailers intensify their delivery efforts to complete with e-commerce giants like Amazon and Walmart, says Nat Kunes, senior vice president of investment management at AppFolio, a property software firm. As a result, he expects to see conversion of traditional retail space to distribution facilities.

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Will the U.S. Industrial Sector Feel Any Impact from Phase I of the Trade Deal?

The first part of the trade deal with China is expected to be signed in a week, resolving some uncertainty around trade issues.

The Trump Administration is expected to sign a trade deal with China on January 15, a development that is expected to help farmers, electronics producers and financial services firms. However, 25 percent tariffs will remain on $370 billion in goods, including parts used in manufacturing and construction materials.

Although the administration has repeatedly claimed the tariffs are being paid by China, a New York Federal Reserve study confirmed what many tariff-opponents have argued from the start–that the tariffs are simply being passed through by importers and costing Americans an estimated $40 billion annually.

The new trade deal will eliminate a proposed 5 percent tariff hike on $250 billion in Chinese-made cell phones, laptops and toys; will scale back tariffs from 15 percent to 7.5 percent on $120 billion in other Chinese consumer goods; and will feature China’s agreement to buy an additional $200 billion in U.S. goods over the next two years.

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Industrial REITs Are Expected to Continue Outperforming Their Peers in 2020

E-commerce will likely continue to drive strong returns for industrial REITs next year, while challenging mall REITs.

Against the backdrop of this year’s Cyber Monday generating record-shattering online sales estimated at $9.2 billion, commercial real estate experts envision e-commerce-fueled industrial REITs being a shining star of the REIT show in 2020. Meanwhile, in tandem with the e-commerce explosion, regional mall REITs will continue to face challenges next year, experts say.

“The e-commerce-driven demand … that has allowed industrial to stay in the sweet spot has pushed most retail into recession,” Green Street Advisors Inc., a Newport Beach, Calif.-based provider of real estate research and advisory services, noted in a November 2019 commercial real estate outlook.

Despite the fact that commercial real estate services company CBRE predicts industrial supply in the U.S. will outpace demand by 20 million to 30 million sq. ft. next year (representing just 0.2 percent of industrial inventory), real estate observers predict the industrial REIT sector will remain vibrant in 2020. In fact, Green Street foresees an increase of 100 basis points in industrial rent growth next year; in the third quarter of 2019, industrial REITs posted an occupancy rate of 96.3 percent, according to trade group Nareit.

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Single-Tenant Net Lease Sales Volume Is on Pace for a Record Year, with Industrial Assets in the Lead

Industrial single-tenant net lease properties are highly coveted by institutional and private equity investors.

In a market rife with uncertainty, investors seeking risk-adjusted, recession-proof opportunities continue to be attracted to single-tenant, net-lease assets. As a result, total single-tenant net lease sales volume at the end of the third quarter had increased by 24 percent year-to-date, to $55.2 billion, according to a recent report from CBRE. It is now on pace to exceed last year’s sales record of $69.6 billion, according to the real estate services firm.

“This sector is growing and will probably total more than $70 billion this year in transaction volume,” says Will Pike, chairman and managing director of the CBRE net lease property group and corporate capital markets.

The industrial sector has been leading single-tenant net lease sales, with transactions totaling $22.3 billion year-to-date at the end of the third quarter, compared to $19.8 billion during the first three quarters of 2018. In the third quarter, single-tenant net lease industrial transactions jumped 48.5 jump to $10.2 billion, compared to $6.9 billion during the same period last year.

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Two Companies Are Dominating the Battle for Warehouse Space

Between them, Blackstone and Prologis have made more than $38 billion in warehouse acquisitions in 2019.

(Bloomberg)—It’s the year of the warehouse mega-deal, and the two largest players are running away from the pack.

Blackstone Group Inc. and real estate investment trust Prologis Inc. are locked in an Amazon-fueled acquisition battle, gobbling up U.S. warehouse space in a bid to profit from rising consumer demand for fast shipping.

Together, the two companies have inked warehouse acquisitions worth more than $38 billion in 2019. More than 40% of that total comes from a pair of deals announced in the last month.

“There’s a huge amount of demand coming from e-commerce,” said Lindsay Dutch, a Bloomberg Intelligence analyst. “The growth of online shopping and the desire for quick delivery times has really driven a need for more warehouses, especially in the last mile.”

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Are Industrial Developers Heading Toward Overbuilding?

A recent paper from NAIOP predicts lower absorption over the next two years, but it’s unclear if industrial developers are taking heed.

Industrial users are expected to absorb about half as much space quarterly over the next two years as they did in 2018 and 2019, when quarterly absorption averaged 60 million sq. ft., according to the semi-annual Industrial Space Demand Forecast from the National Association of Industrial and Office Properties (NAIOP).

This predictive model, which was co-developed by Hany Guirguis, professor of finance and economics at Manhattan College, and Randy Anderson, formerly of the University of Central Florida, is based on a process that involves testing more than 40 economic and real estate variables related to demand for industrial space and has been shown to be relatively accurate. In 2018, 222.2 million sq. ft. of absorption was forecast, which was in line with actual absorption of 229.5 million sq. ft.

The most recent lower forecast is based on a slowdown in U.S. economic growth, as the impact of tax cuts wears off and business spending and investment declines due to economic uncertainty initiated by the trade war with China. Other factors adding to the uncertainty, according to authors of the NAIOP report, include: a slowdown in Chinese and European economic growth and continued uncertainty over the impact of Brexit.

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