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Capital Markets: Insights, Observations and Forecast

The capital markets panel at I.CON West 2019 brought together some of the largest owners and investors across the industrial sector for a discussion on opportunities and trends across the industry.

“Last year was a record-setting year for industrial investment sales volume,” shared moderator Chris Riley, vice chairman at CBRE, to kick things off. “In 2018, all of your companies acquired large multiindustrial markets in the U.S. Many see this as a strong vote of confidence in the industrial sector,” he said, speaking to panelists David Levine, managing director at The Blackstone Group; Mario Morroni, executive vice president for industrial North America at Ivanhoe Cambridge; and Gene Reilly, chief investment officer for Prologis.

“We’re bullish on the sector and we have been uniquely bullish in the income growth profile,” agreed Reilly. “Something that isn’t talked about a lot that is critical to the sector is where is the in-place income? Let’s say we hit a downturn, and we will someday. You have a cushion in place.”

“We like the current return that the industrial sector offers,” added Morroni, “though there is still appetite for all three classes.”

But has the depth of capital for billion-dollar deals become shallower? “We still have our investors come to us looking for opportunities in the industrial space. Especially money coming from abroad that wants to make a big splash,” said Levine.

Riley asked the panelists how they’ve changed their investment strategies with e-commerce demand.

“We’ve always been close to our customers, and certainly a lot of them are getting into this space,” said Reilly. “Everyone is chasing the last touch, last mile, but I think our customers are basically in the R&D stage – and so are we.”

“We’ve put a billion dollars into infill deals for last mile real estate. As for who is the tenant in there five years from now, I couldn’t tell you,” he added.

“It’s important not to underestimate the e-commerce trend,” Morroni agreed.

Will flex space take over the industrial sector next? “WeWork has obviously blown up in a big way, but to me much it’s much easier to relocate your office space than revamp your entire supply chain,” Levine said. “It is a trend that people want flexibility, but I wouldn’t expect it to ramp up in industrial to the level of WeWork in the office sector.”

Lastly, Riley asked the group for the biggest threat they see ahead. “Political or macroeconomic threat,” said Reilly. “Blackstone buying all the assets,” Morroni joked. “Potentially supply, but hopefully we’ve all been more disciplined this cycle,” said Levine.

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