Value-Add Deals, Biggest Industrial Opportunity for 2019

Industrial market veteran Jim Linn has joined Newmark Knight Frank as executive managing director, focusing on focus on industrial capital markets, and he is setting up for another healthy year of industrial activity. This year, Linn expects repositioning of class-B and class-C industrial space to be among the biggest opportunities for industrial capital in the Western US markets.

“The biggest opportunities for industrial capital will be repositioning class B- and class-C product in tier one markets in the Western Region,” Linn tells GlobeSt.com. “Local operators in tier two markets can take advantage of higher yields than in tier one markets for class B to class B- properties in secondary markets.”

In terms of geography, he expects Los Angeles, the East Bay in Northern California and Puget Sound to continue to be the industrial leaders in 2019. These three markets should continue to see strong rent growth and an absorption rate that keeps up with new development activity, according to Linn. “These areas have logistic nodes, where product is brought in through the sea ports from the Pacific Rim or intermodals where product is imported domestically from the Midwest and Texas and Eastern Seaports,” he says. “These are land-constrained markets, pushing prices on what little land is available. Additionally entitlements are challenging as they remain both time consuming and expensive. We’re not only seeing an increase in e-commerce, but also B2B business is growing in all of these markets.”

Investors looking to reposition product in secondary markets, however, could face challenges, especially for investors new to the geographic location or industrial sector. “Operators looking to reposition product in secondary markets will need to have a real understanding of both the product and demand to take advantage of value add opportunities,” he says. “This is because out of town investors venturing into tier 2 markets could get ‘hometowned.’ This type of investing is nuanced. An investor needs to have a handle on absorption at the property level and make sure they are buying product that will lease relatively quickly and increase in value.”

In 2018, entity level transactions helped to produce strong investment volumes; however, 2019 should see more individual asset transactions and small portfolios, which could impact deal volumes. “Investment activity should remain very strong on an individual asset level and for smaller industrial portfolios,” says Linn. “Entity level transactions in 2018, such as Prologis’ acquisition of DCT and Blackstone’s acquisition of Gramercy Property Trust, gave a significant boost to industrial investment activity.  Overall industrial investment activity will depend on the number of entity level and larger portfolio transactions in 2019, which are big levers for activity.”

Linn joins NKF from Talos Capital, a firm he founded and served as president. There, he closed more than $15 billion in transactions. He hopes to leverage his experience and NKF’s growth to find similar success. “Having been on the principal side, I bring a fresh perspective toward the marketing and value creation of industrial dispositions. I’ll be joining the well established and successful, experienced team of Bret Hardy and Kevin Shannon,” says Linn. “Brokerage is in my blood and jumping back into this role has been energizing. Kevin and Bret’s client-focused approach matches up well with my style and the opportunity at NKF provides me with the best opportunity to build upon the relationships we already have and form new bonds with capital markets players throughout the world.”