“Everyone wants to know where are all the capital is coming from [for cold storage], whether it’s from an investor standpoint or from a lender standpoint, whether it’s for existing buildings or for development,” began Marc Duval, senior managing director, JLL Capital Markets, moderator of a cold storage capital markets panel at NAIOP’s I.CON Cold Storage conference in Las Vegas.
The expert panel – cold storage lenders, developers, operators and professionals – shared their perspectives on available capital for this sector and what to expect in the year ahead. A recurring theme: Investors are realizing they don’t want to get left behind and are looking for entry points into cold storage.
“Capital seems to be awakening to the [cold storage] space,” said Vince Clark, CFA, U.S. investments director, Madison International Realty. He noted that Lineage Logistics celebrating its initial public offering in July – the largest IPO of the year so far – brought increased attention to the cold storage sector. Lenders are interested in learning more about how to get involved – and how not to miss out.
Duval turned to Sean Gilbert, principal, Saxum Real Estate, for insights from the developer’s side.
“We’ve been heavily investing in the space the last five years,” said Gilbert. “Last year we delivered about 2 million square feet across seven buildings, and right now we’ve got about 1 million square feet under construction across three buildings with a pretty robust pipeline behind it.”
In terms of investments, Gilbert noted there’s only one dedicated cold storage fund in the U.S.: BGO. Meanwhile, “If you look at industrial multifamily, every large investment manager has a dedicated industrial fund.”
One of the challenges is investment managers getting into the space trying to invest through a separately managed account (SMA), putting out a few hundred million dollars, for example, Gilbert said. “It’s such a nuanced space that I think there are really only a few developers with enough pipeline right now that could support putting out that amount of equity.”
In addition, another challenge with SMAs is a big education curve to get them up to speed on cold storage and get them comfortable with that developer or operator, making it a nine to 12-month process.
“And so, if you’ve got a deal today, you know, what do you do? Where does that money come from?” Gilbert said. “We’ve started to see a lot of industrial funds widen their investment parameters to now include cold storage for a small percentage.”
William Nelson, principal, cold storage investing, BentallGreenOak, shared that while they manage predominantly on behalf of large pension funds, different groups classify cold storage differently: some consider it real estate while others place it in the infrastructure bucket. “And so, they’re looking at it in different ways, trying to understand where they view it in their mind, and then also the risk profile.”
“If you’re looking at operating company exposure, it’s kind of more in private equity bucket and infrastructure within those funds,” said Nelson. “On the private credit side, we have a lot of demand for that space from borrowers, but also institutional investors looking to get exposure to the cold chain through the credit side of the business. So, a lot of people looking for entry points, but there are not a lot of entry points that scale for a lot of these groups.”
Capital for cold storage is coming from “a lot of large capital allocators, pensions, endowments, and others that want to put out $100 million-plus checks, and they don’t, quite frankly, have the time to do stuff on a portfolio-level basis,” said Clark. “So, they’ve started to engage with kind of more direct relationships with a lot of what they would view as best-in-class, vertically integrated groups that can help to get them cold storage exposure. And they’re really looking to make a bit of a marriage between platform investments.”
Companies are taking this approach because they are interested in getting more exposure to an asset class they’ve probably been underinvested in, Clark said, and they view this as a way to scale up exposure with some control.
Historically, banks and agribusiness groups financed cold storage, said Blake Thompson, vice chairman, global debt and structured finance, Newmark. “Now, life cos [life company real estate portfolios], private credit vehicles and debt funds have really emerged and taken a big, big push into the space. We’ve seen pension funds enter the space as well.”
“[Cold storage] kind of checks an alternative box for a lot of people,” Thompson said, “And that’s really where we’re seeing people push into the space right now.”
From a lender’s perspective, Thompson noted the biggest challenge for cold storage investing is the continuing education in the space.
“It’s still not fully institutionalized,” Thompson said. “That ongoing education is one of the bigger challenges we have getting lenders into the space: explaining why these buildings need to exist and where they fit in the food chain.”
“When we look at these things, we must look at them holistically. It’s not just the next building in the pipeline, but how good are they at servicing the tenant?” said Clark. “It’s a whole flywheel effect of the good begets the good,” with a high value placed on experienced management.
From the developer’s side, Gilbert noted the importance of ensuring these highly specialized buildings can be released for future tenants.
“At the end of the day, it’s a real estate play,” Gilbert said, “So, scorched-earth scenario, what is the releasability of a building if a lender leaves? It’s focused on location, but it also has to be able to be re-leased to another company. If we built 300,000 square feet, we have to have the ability to break that up if we need to. We are very thoughtful about design and worst-case scenario.”
“The opportunities are starting to come more and more frequently,” Clark said. “[Cold storage] has historically been a sector that has been underinvested in from a capital standpoint compared to other sectors. There are a lot of ways to win.”
