Richards: Essentially, everything is related to the tremendous growth of e-commerce and the distribution infrastructure needed to support it. Industrial product able to service this industry is in tremendous demand and will continue to grow. This continued growth reduces the risk for institutional investors over time in addition to the credit-worthiness of these types of tenants. Proximity to large residential service areas is key to these buildings; thus, these types of buildings can be solid location plays as well.

GlobeSt.com: Does this trend represent a challenge to private buyers interested in this asset type?

Stos: They create a challenge for each other. The institutions are hot and heavy to get into the last-mile arena, but so are the private guys. There are a lot of 1031-exchange guys wanting to get out of deals, so there are a lot of private-exchange buyers bidding up product as much as the institutions are. Both are going after it and driving up the price. They typically go for assets of between 80,000 square feet and 150,000 square feet.

Richards: More competition always creates difficulty for buyers of all types. Adding to this, the demand from institutions is so strong that we have also seen them willing to do slightly smaller deals than they're accustomed to. But what's a large deal for San Diego can be small for other major markets.

GlobeSt.com: Which strategies are buyers of all stripes using to gain an advantage in this competitive marketplace?

Stos: We're value-add dealers in real estate. We prefer to buy a vacant building, turn it around and sell it to core buyers. There's not really any magic to it; it's just that an institutional buyer gave us the best terms, a quick close and met our price. We had 10 to 20 offers; however, some buyers are more “real” than others, so we weigh that against who's willing to pay the highest price.

GlobeSt.com: What else should our readers know about last-mile distribution centers here?

Stos: We hope to do more sales like this in the future. Being close to rooftops is important to these tenants, along with immediate access to freeway and excess land. Those are the three components that are important for last-mile tenants.

Richards: Industrial buildings of this type that are located in the infill or central markets of San Diego are in high demand due to logistical efficiency requirements to service dense population centers; thus, we're seeing a slight increase in rental rates in those markets. As a result, valuations are approached differently between markets that lend themselves to last-mile versus those that don't.