Capital Flows to Industrial Assets In Search Of Higher Returns

With amounts large and small, investors are finding ways to continue to ride the industrial asset class and its long-standing winning streak. And little wonder. According to a market report by Black Creek Group, core industrial real estate — that is, high-quality warehouses that are fully leased to creditworthy tenants — has delivered the highest returns of the main property sectors throughout the current economic cycle producing 13.06%, 13.42%, 13.2% and 7.7% total returns on a one-, three-, five- and ten-year basis, respectively.

E-commerce, of course, is a driving factor behind this growth.

“While the traditional port-driven warehouse markets continue to grow at a consistent pace, online commerce is accelerating demand for state-of-the-art facilities that can facilitate same-day and one-hour deliveries in major metropolitan areas across the US,” said Brad Simpkins, portfolio manager of TH Real Estate’s US Strategic Industrial Fund I. “A supply shortfall in these facilities coupled with healthy economic growth has generated significant pent-up demand for these industrial properties.”

An affiliate of Nuveen, TH Real Estate just closed on one of these funds taking aim at the industrial asset class: the TH Real Estate U.S. Strategic Industrial Fund I LP, which had a total capital raise exceeding $330 million. Including leverage, the equity commitments will allow the fund to target a portfolio of approximately $1 billion.

The fund will acquire and develop bulk and light industrial assets in major US industrial markets including last mile locations. The fund will also focus on well-located properties in these top industrial markets that can be repositioned or redeveloped.

“Investor interest in this asset class remains strong, reflecting the opportunities created by a growing economy and a supply shortage that keeps vacancy rates low and rents high,” according to Graydon Bouchillon, Head of US Industrial for TH Real Estate. He reports that the fund attracted  interest from institutional investors, individuals and financial advisors.

The fund’s portfolio has acquired four US properties to date:

• 301 Business Center, a Class A industrial development project totaling 863,600 square feet located in Tampa, Florida
• Empire Business Park, which consists of two multi-tenant business parks totaling 212,626 square feet located in Southern California’s Inland Empire
• Serrano Business Park, a Class A industrial development consisting of three facilities totaling 327,080 square feet located in Southern California’s Inland Empire
• 8575 Volta Drive, a Class A industrial warehouse totaling 168,425 square feet located in Houston

Another example of capital seeking out industrial asset strategies comes from the Denver-based Black Creek Group, which last month received a $400 million equity commitment from institutional investors advised by J.P. Morgan Asset Management for programs focused on industrial real estate. The programs span different investment strategies focused on core, value add and development.

Over the last five years, Black Creek Group has completed 10.5 million square feet of industrial development and currently has approximately 11 million square feet under development.

“As an acquirer of core and value add, as well as being an active developer, we are better able to recognize selected opportunities as well as assess the risks inherent in each category,” Dwight Merriman, Head of Real Estate tells GlobeSt.com.

For example, “submarket concentration is an operational advantage and having versatility provides more opportunities to aggregate assets within a desired geography,” he says.

“Being a core real estate acquiror, we believe, makes us a better value add investor and developer. As a core buyer, replacement cost is an important consideration and accurate replacement costs are best known by active developers.”