ElmTree Invested $1.5B In These Net Lease Assets

A global pandemic didn’t stop ElmTree Funds from ploughing capital in its favored asset class last year.

The company reports that it has deployed more than $1.5 billion in capital over the last year in various industrial net lease build-to-suit assets leased to investment-grade tenants located across the United States.

“We believe there is currently a void for newly constructed, well-located last-mile facilities for large corporations looking to quickly grow their supply chains and meet consumer demand for shorter delivery times,” James Koman, CEO and founder of ElmTree, told GlobeSt.com. “As a result, we expect to see major growth in last-mile facilities throughout the U.S. over a long-term horizon.”

Koman says the pandemic has highlighted the need for continued investment and development of industrial facilities that support cold storage, last mile and third-party logistics capabilities.

“Last year, annualized e-commerce sales grew approximately 30%, and we expect e-commerce sales to continue to grow over the next several years,” Koman says. “To capitalize on this growth in order volume and to meet the demand from consumers for shorter delivery times, we believe online retailers and logistics services providers will continue to build new industrial facilities throughout the country.”

Particularly in a low yield environment, investors like ElmTree have been looking to investment grade net lease assets for predictable long-term cash flow streams. “At ElmTree, we partner with investment-grade, Fortune 500 companies seeking to build out their supply chains for the long term,” Koman says.

While industrial has been doing well around the country, Koman sees the strongest growth in primary and secondary markets throughout the Midwest and South regions over the past 12 months.

“The reason for this growth, we believe, is that online retailers are continuing to build out their supply chains to offer shorter delivery times to more and more markets, and many companies already operate significant existing infrastructure in gateway coastal markets,” Koman says. “Additionally, we believe corporations are finding primary and secondary markets attractive given they still feature large population bases with educated labor pools and reliable transportation infrastructure, but their labor costs are often lower in comparison to gateway markets.”

Koman says ElmTree will continue to focus on industrial assets while paying close attention to tenant credit quality. “We are primarily focused on the industrial sector given we believe it offers the most attractive supply and demand fundamentals in the current environment,” Koman says. “We will consider build-to-suit office investments with investment-grade tenants from time to time, but, for the most part, we expect to focus on industrial assets moving forward. “

There has been cap rate compression in the industrial sector. However, Koman believes the spread between net lease cap rates and fixed income investments still offers net lease investors a significant yield premium.

“While more and more capital is flowing into the industrial sector, we believe the sector’s supply and demand fundamentals remain robust,” Koman says. “Demand is fueled by consistent growth in e-commerce sales, companies shifting towards higher inventory levels and reshoring industrial facilities.”