Cottonwood Group Enters Industrial Lending Market with Two Transactions

Private equity firm Cottonwood Group has entered the industrial financing market with two new deals totaling $80 million. The firm made its foray into the market with a $27 million construction loan for a ground-up construction project in Prussia, PA, and a $53 million bridge loan to fund a redevelopment project in Silicon Valley, CA.

Cottonwood plans to focus on what is calls “unique and complex projects” pointing to its two first projects as examples. Novaya Foxfield Industrial, the ground-up constriction project in Prussia, is a 330,000-square-foot last-mile distribution center spec development, and the Silicon Valley project is an adaptive reuse project.

Although these first two projects are construction loans, Cottonwood will offer a full suite of loan products for everything from acquisition and predevelopment expertise to bonding capabilities and solving guarantee issues, entitlements, design and construction management. The firm has up to $500 million in purchasing power per transaction or portfolio deal, giving it the ability to fund a wide-range of deals.

Cottonwood is only the most recent company to increase its exposure to the industrial sector. Industrial has been considered a flight-to-safety for many investors during the pandemic, and it is one of the few asset classes with strong investment transaction activity. Already this year, Preylock Holdings’ acquisition of a three property distribution portfolio in Atlanta and Memphis totaling 2.2 million square feet; CRG sold the The Cubes at DuPont, a 1.6 million-square-foot asset in Seattle for a staggering $221 million to Duke Realty; Alex. Brown Realty sold a 1.3 million-square-foot, six-property industrial portfolio to Platform Ventures for an undisclosed amount; and REIT Rexford Industrial acquired five industrial properties in Southern California for $72.2 million.

While investment activity reflects extreme bullishness on the sector, there are two potential challenges lurking ahead: overbuilding and tenants that are struggling with the pandemic. On CBRE’s “The Weekly Take” podcast, Peter Linneman, principal and founder, Linneman Associates said that even with growing demand, there is the potential to overbuild any asset class. He also notes that not all tenants are created equal. While e-commerce giants like Amazon are performing well, other industrial users are struggling.