Where Class B Industrial Infill Product is Approaching Class A Cap Rates

ATCAP Partners, a Dallas-based real estate investment company, closed its joint venture with Brookfield through its Real Estate Secondaries business. The joint venture has acquired a 3.5-million-square-foot national logistics portfolio. Terms of the transaction were not disclosed.

The acquisition builds on ATCAP’s recent track record of investing in critical logistics assets in key regions and brings the firm’s national logistics portfolio to more than 9.5 million square feet. 

Comprising 51 high-quality logistics properties, the portfolio totals 3.5 million square feet and includes infill locations in strategic, high-growth markets such as Dallas, Denver, Austin, Houston and Oklahoma City. The portfolio is currently more than 94% leased to high-quality tenants.

This transaction is a key milestone for ATCAP as it looks to grow its industrial holdings in attractive markets across the United States, David Cartwright, Principal at ATCAP, said in prepared remarks.

“We have seen particularly strong growth in this space over the past year, and this portfolio represents a compelling opportunity to partner with an industry-leading partner in Brookfield.”

Class B Infill Product Approaching Class A Cap Rates

“What is interesting about this transaction is that it continues the trend of the last couple years where large institutional capital elects to team up and recap a seed portfolio and then provide growth capital moving forward,” Trent Agnew, Senior Managing Director and Industrial Group Leader, JLL Capital Markets, tells GlobeSt.com. “This will only accelerate in 2022, as capital looks to gain access to scale in the sector.”

The portfolio that ATCAP was able to assemble is primarily in the Sun Belt states where capital continues to migrate because of tremendous population migration trends and the corresponding rent growth that is expected, with nearly every market projected to experience another year of double-digit rent growth, Agnew points out. “As a result, cap rates in Class B infill product like this are approaching Class A cap rates due to the significant embedded mark-to-market opportunity that exists within the rent rolls.”

“As you look at the development pipeline nationally and the inability to keep up with tenant demand, this is even more exacerbated in the shallow-bay segment of the market as a rising percentage of the development continues to be in the big box segment where it is easier to get out significant equity dollars,” he concluded. 

Deal Emblematic of Secondaries Purchases

Marcus Day, Managing Director at Brookfield Real Estate Secondaries, noted in prepared remarks that this GP-led secondary transaction is emblematic of the types of investments it is pursuing in the real estate secondaries space. 

Eastdil Secured represented ATCAP in the transaction.