Investing in an Ultra-competitive Marketplace

Investing in industrial real estate often equates making significant bets in the sector, say three diverse sources of capital who shared their outlooks during a capital markets panel this week at I.CON West 2019.

Dale Todd, CFA, MRICS, executive director with J.P. Morgan Asset Management, shared that the bank is probably more of a real estate developer than people realize, with a strategy for infill development and the ability to build the portfolio the company wants. He says that today’s market is very interesting, noting, “We are bullish on industrial for all the reasons you all [in industrial real estate] know,” he said. “J.P. is focused on accessing midsize operators that need capital, particularly the ones who value a capital partner that pays great promotes.”

Todd says J.P. has been successful in accessing solid deals in markets with a lot of leasing activity and absorption; looking forward, the company is thinking about investing in markets beyond the big five (California’s Inland Empire, Dallas/Fort Worth, New Jersey, Atlanta and Chicago, according to the National Real Estate Investor), strategically looking at areas that have access to labor dynamics and ones with rising tenant demand. He says the company aims to be in markets with the best risk-adjusted profiles.

Amy Curry, senior vice president, acquisitions and joint ventures, eastern US, with Hillwood, explained that her company is privately owned by Ross Perot Jr., and has established a fund business that developed 20 million square feet in 2018 and has 19 million currently under construction, in addition to its work in acquisitions. She said the company’s creativity toward approaching deals gives them an edge, and in joint venture partnerships they don’t mind not being the face of the project and instead being more of a passive partner. “The company has a reputation of being able to act fast and be nimble,” she said. 

Greg Pearson, vice president of investments with CenterPoint Properties, said one of the biggest challenges for the company’s portfolio is parking – definitely a sought-after commodity on the West Coast. Developers say there are no more good sites, and that might be true because it is definitely harder to find good places to build, the group agreed. “Certainly all the easy sites are gone,” said Pearson.

Is there a resetting to what investors consider the top five markets? Yes, the panelists agreed, naming Nashville, Austin and Denver. Pearson mentioned opportunity in Seattle and Tacoma, thanks to vast improvements in the market’s port. He said the company looks at port through-put (good that move through the port and move inland) versus local consumption, and Seattle’s local utilization of goods coming into the port is growing.

Curry said Hillwood remains open-minded, creative and flexible when it comes to finding new opportunities. “We keep an eye on the horizon,” she said. “It’s not unusual to find a deal today that might be a next-cycle deal. Not everything has to go immediately into production.” 

Todd said the rent growth picture is different across markets and products. Infill and shallow-bay markets seem fairly balanced from a supply and demand perspective, but the opportunities for new development is scarce in those markets and that’s good for rent growth. Curry noted that land pricing has be considered. Those costs might soften a bit with future recession, but land and construction costs today are continually climbing higher and higher.

The group agreed that a slowing economy, global events and low interest rates will have an effect on the industry, but all concurred that a likely recession within the next few years doesn’t decelerate their investment today.

“We are looking to make good real estate decisions now and won’t skip a deal because of a recession that might be years away,” said Todd.

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