Why Colony Capital Bought a $1.2B Industrial Portfolio
Investment firm Colony Capital added 54 industrial properties to its portfolio with a $1.16 billion acquisition, the company announced in a release last week.
The 11.9 million-square-foot portfolio includes properties in nine markets across the United States and expands Colony’s footprint by roughly 25 percent.
It was just last month that Colony unloaded another industrial portfolio to Nuveen Real Estate for $136 million. So what would drive Tom Barrack’s investment firm to make such a big industrial play?
The company is still in the process of finding its stride after a merger with NorthStar Realty and NorthStar Asset Management in 2017. The merger tanked the firm’s market cap, and its share price has yet to recover to its pre-merger price.
Industrial is one area of Colony’s focus, together with healthcare and hospitality, and the firm has been expanding its industrial portfolio over the last several years, said Lew Friedland, the head of Colony’s industrial arm.
Before this acquisition, Colony had 48.5 million square feet in 20 markets throughout the United States, with high concentrations in Dallas and Atlanta, up from 30 million three to four years ago, per Friedland. In 2018, Colony added assets in Atlanta, New Jersey, and Florida among other markets, and ended the year with 400 industrial properties, a net gain of 31 properties from the previous year.
This acquisition is in keeping with that trend. The 54-building package gave the company access to six new markets, said Friedland, including Seattle, Wash. and Los Angeles, Calif. “There was great overlap of existing markets that we’re in,” he said. “In three of the nine markets, we already had a presence. The other six were targets of ours.”
All six markets are metropolitan areas that the company had previously targeted because of their high population growth and demand for last-mile and infill warehousing, an area that’s seen explosive growth nationside.
In the Los Angeles metropolitan area for example, pricing for industrial land increased 25 percent in 2018, according to a report from CBRE, and asking lease rates grew 7.5 percent to $0.85 per square foot. The increases were driven by online retailers and third-party logistics companies, per the report.
Most of the buildings were newer stock that fit the distribution needs of such companies, Friedland said. One such property was the 225,972-square-foot LogistiCenter 167 in Fife, Washington, which was developed in 2016, and is about an hour outside Seattle, Wash.
While Colony’s primary focus is in light industry, the portfolio includes both light and bulk industrial buildings. The six bulk warehouses in the package span a combined 4.4 million square foot, while the remaining buildings span 7.7 million square feet.