Multistory Warehouses Draw Investors and Developers Despite Challenges

Some see a natural progression in their increasing popularity, while others see a dead-end complement to single-story expanses


Hard by the water of New York Harbor in Brooklyn’s Sunset Park stands the Whale Building. It could be a relic of the borough’s industrial past, but instead now has a future in modern industrial storage.

The 500,000-square-foot, seven-story black structure is where Portal Warehousing is readying two floors — six and seven, totaling 59,000 square feet —  for small “maker” businesses to store their goods. It should be ready to go in mid-January, those involved with it say.

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“Most landlords think that industrial is just a warehouse,” said Alex Morrison, CEO and founder of Portal. “We’re trying to change the view of what an industrial space is.”

No one expects multistory warehouses to knock vast single-story warehouses from their perch atop the industrial storage pecking order. Plenty of commercial real estate professionals and investors believe that 35-foot clear heights out on the periphery of a city’s outer ring of development — think of the warehouses out by Interchange 7A and 8A of the New Jersey Turnpike — will dominate the space for the foreseeable future. But both brokers and their research arms say that multistory warehousing is making a hard charge, fueled by rising demand for e-commerce and same-day or next-day delivery times. 

Attention on the “last mile” — getting the product from the warehouse to the doorstep — is changing the economics of goods delivery and bringing new life to old multistory storage buildings, as well as creating an impetus for new multistory buildings close to dense population centers. 

“Multistory warehousing has really been a more common phenomenon in Asia than in the U.S.,” said Stephanie Rodriguez, U.S. director of industrial services at brokerage Colliers. “But, a few years ago, we started seeing one-off multistory development. One went up in Seattle for Amazon. There’s one in New York City, fully leased to my understanding. And there’s one in Miami that Prologis (PLD) [the largest real estate investment trust that focuses on warehouses] developed. It’s a very costly undertaking, that’s one of the challenges. Multistory is not for everyone.”

Prologis, one of the world’s largest warehouse owners, said there is impetus behind the development of multistory warehouses in the U.S., and it already has a few in its portfolio.

“In 2018, we built the first multistory logistics facility in the United States,” said spokeswoman Mattie Sorrentino in an email. “The warehouse is a three-level, 590,000-square-foot facility minutes from downtown, near the port of Seattle. [The area’s] geographic features — mountains, lakes and Puget Sound — can constrain available land for development. Georgetown Crossroads was unique given its relatively large size in the submarket of South Seattle.”

Prologis also built and operates a multistory facility in Miami and is developing one in San Francisco, Sorrentino said. 

Multistory “is not your run-of-the-mill, tilt-wall, big-box construction,” wrote JLL (JLL) Vice Chairman Leslie Lanne in an October report entitled “Multistory Warehouses and Their Towering Future.” “In fact, 59 percent of the urban logistics inventory in New York City was actually built between 1900 and 1959. There is no doubt that this sector has room for expansive growth in the coming years.”

According to the JLL report, there are 9.4 million square feet of last-mile logistics either under construction or planned in New York City. There are five existing multistory warehouses in the city and another five under construction.

Acceptance of multistory warehousing is less than total.

“Multistory in the U.S. doesn’t make sense,” except maybe in some unique situations, Ward Fitzgerald, global CEO of Radnor, Pa.-based investor and developer EQT Exeter, whose holdings include about 1,500 warehouses, said at a recent New York University Schack Institute of Real Estate conference. “I think multistory warehousing is not necessary.”

There is no storage that a multistory warehouse can do that can’t “be accomplished in a single-story warehouse given the super flat floor and sprinkler system technology that allows for [a] significantly less expensive cube” with a 42-foot clear height, Fitzgerald explained.

Lanne’s report identified many of the multistory projects going on in New York, including at 2505 Bruckner Boulevard in the Bronx, where the developers Innovo Property Group and Affinius Capital took a 20-acre site and built a new 1.1 million-square-foot warehouse with two 28- to 32-foot levels and ample means to get trucks in and out. The location has access to 10 million consumers within 15 miles, she wrote.

There’s also the Red Hook Logistics Center not far from the Whale Building, a three-level, 385,510-square-foot development with 31-foot clear heights. It is being developed by a partnership that includes RXR, one of the major property companies in the New York metropolitan area.

In Chicago, there’s a 1.2 million-square-foot, five-level project at 1237 West Division Street near Interstate 90, which connects the central business district with O’Hare International Airport. When completed, it will boast 36-foot clear heights on level one and 33-foot heights on level two. Logistics Properties Company is the developer.

“For multistory in Chicago, they’re at Main and Main,” said Larry Goldwasser, an executive vice president in the Chicago office of brokerage CBRE and an industrial and land real estate specialist for more than a quarter-century. “They’re at a critical service location because of the proximity and the population density.”

Brokers are finding that there is a market for the space, Goldwasser said.

For any well-located multistory warehouse, “the broker is in a good position to represent,” he said. “The new multistories are typically very well-located, brand-new buildings, but you do have smaller tenants. There are typically higher construction costs and higher land costs for the developers.”

The JLL report noted that the cost to build a multistory warehouse is about twice the cost of a single-level asset. 

Goldwasser said that CBRE had started a “special practice group” whose purpose is to “really help us crack the multistory market.”

With land within cities scarcer and more competition from other property types such as multifamily, it takes a rise in rents to make multistory warehousing worth the trouble. Joshua Weingarten, director of capital markets at Triangle Equities, a Queens-based builder, said that rents, typically around $15 a square foot for storage, have to be above $30 a square foot for multistory to make sense.

Weingarten is serving as the project manager for JFK Terminal Logistics Center, on South Conduit Avenue in the Jamaica section of Queens, and describes himself as “like the quarterback” of the project. That project will have ramps so tractor-trailers will have access to the second level. He said the approximately 300,000-square-foot warehouse would feed off the nearby JFK International Airport. The anchor tenant is a company named Doco, which makes the meals served on flights, he said.

Most of the stock of industrial warehouses in New York are “functionally obsolete” due to age, Weingarten said. “There’s an incredible supply shortage,” he said. “We saw that as an opportunity.”

Sitting as it does on the harbor, Brooklyn’s Whale Building offers incredible views, which one might consider wasted on the inanimate objects to be stored there. But Portal’s Morrison said the renovation is as much being done with people in mind as with goods. In fact, he said the project is at least in some ways following the playbook for coworking spaces, with pantries and a lounge area where entrepreneurs can interact and share ideas of getting goods into consumer’s hands quickly and efficiently. The development is geared toward small tenants.

“These people, they want to be around people,” he said. “We’ll offer a ton of support on logistics, help with shipping, help with receiving. We’ll have a full-time person on staff to help make your life easier.”

The Whale Building was in the news back in May when it was among the properties that the owner, Nightingale Properties, was failing to pay the debt service on. At that point, Joshua Zamir’s Capstone Equities bought its loan from TPG Real Estate Finance Trust and now controls an entity that owns the building.

Morrison, in an email, said that Nightingale wanted to renovate the building for creative offices, following the lead of neighbor Industry City, but Capstone “is focused on taking [it] back to its roots” as an industrial property. The building once belonged to the Whale Oil Company, hence the name. The aim is for the Portal space “to act as an incubator” for the rest of the building, he said.

This is to be Portal’s first such multistory facility (it has single-story warehouses in Phoenix, Los Angeles and Salt Lake City). More than 200 companies have signed up for tours, and about 50 have already been through the Portal space, he said.

“We’re really creating a brand,” Morrison said.

CORRECTION: This article was updated to reflect that the Brooklyn project is Portal’s first multistory warehouse.