Sunday Summary: Industrial Is Hopping Like an Easter Bunny
By The Editors March 31, 2024 9:00 am
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While we’re certain that the majority of our readers have long ago secured the proper hiding place for their kids’ Easter eggs, we have a suggestion for any last-minute stragglers:
Hide them in an Amazon (AMZN) office. Because there’s very little chance of them being stumbled upon by workers given that it was revealed Amazon was consolidating and cutting its office space in an effort to save (gulp!) $1.3 billion.
That’s gonna mean a lot of empty real estate.
Business Insider stumbled upon a leaked memo outlining the plan, and when this became public Amazon ’fessed up to Commercial Observer.
“In some cases, employees may move buildings to increase collaboration and drive better utilization of our workspaces,” Amazon spokesman Brad Glasser told us. “In other cases, we may take on additional space where we’re currently limited or make adjustments where we have excess capacity. To suggest that this is about anything else — such as our expectations for working in the office — is at best a misunderstanding and at worst intentionally misleading.”
Notable in the statement was no mention of Amazon’s much, much more formidable (at least in square footage) warehouse footprint.
And this is not exactly surprising. While even a giant like Amazon might be reeling from surplus office space, warehouse and industrial real estate in general still seem like a steady bet for investors.
Link Logistics, for one, just announced that it is expecting a “similar volume” of leasing this year as last year. And in 2023 the company leased 86 million square feet of space. So, yeah, they’re doing fine.
And Prologis (PLD) said on a recent investor call that it is planning to do $3 billion to $3.5 billion in new development this year.
Many had been worried that the appetite for this asset class had peaked, and it has in some places, but this still doesn’t seem to be the case overall.
“The demand in the long term for industrial is strong,” said Xander Snyder, an economist for First American. “We’re going to have a lot of supply come to market in the short term and the intermediate term. But, in the long term, demand is still there for that space.”
Indeed, just last week Rexford Industrial Realty plunked down $1 billion for a 3 million-square-foot, 98 percent-leased portfolio from Blackstone (BX).
The asset is so in demand that you don’t even really need to build a warehouse to attract investors. Industrial outdoor storage is doing just fine, too. Companies like Alterra Property Group have been on a tear; Alterra IOS has bought or developed $2 billion worth of IOS since 2016 in 30 different states. Dan Haroun and Max Heiden’s Catalyst Investment Partners has been around only since 2021, but they’ve already accumulated $500 million in IOS assets. That same year Ben Atkins and Daniel Laub founded Zenith IOS and have assembled a portfolio worth $600 million.
“There’s plenty of capital flowing into that space. It seems like the hottest asset class in the country right now,” said Cooper Horowitz Real Estate Financing’s Justin Horowitz, who has done more than half a billion dollars worth of IOS financing. “There are plenty of tenants in the space that need to park trucks or equipment where it’s mission critical to their business. Lenders are seeing that and saying, ‘This isn’t just a piece of land that we’re valuing and lending on. This is a cash-flowing asset with a real tenant and a great lease.’ ”
March 28 was Opening Day (even though it was rained out at Citi Field… which might have been the best possible scenario for the Mets — sigh). That got us thinking about sports in general, because two things caught our eye.
It looks like the new promised Capitals and Wizards arena in Alexandria, Va., died last week.
The $2 billion proposal to move the two teams to Potomac Yard was rejected by the Virginia General Assembly. (Well, they didn’t include it in the budget.) Shortly thereafter, the City of Alexandria pulled out of negotiations with Monumental Sports & Entertainment, which owns the teams.
Thankfully, Washington Mayor Muriel Bowser was wide open as the clock ticked down. It seems like she’s on track to keep the teams in D.C. through 2050 and promises $515 million in renovations for the existing Capital One Arena.
“[We are] the most important city in the world, and we are the current home and the future home of the Washington Capitals and Washington Wizards,” the mayor was able to trumpet at a press conference announcing the buzzer-beater deal.
And Major League Soccer scored a major lease last week at Penn 2. Corny? Hey. You try to pass up the chance to describe a 64,200-square-foot lease that will double the league’s existing footprint, bringing it up to 126,000 square feet without using that corny pun. (Heh, footprint!)
Comings and goings
A big surprise hit the CRE world this week when one of its legends announced his semi-retirement.
We’re talking about Ralph Herzka, the co-founder of Meridian Capital Group, who is stepping down from his perch as CEO in favor of Brian Brooks. (Herzka will be senior chairman of the company focusing on broadening Meridian’s relationships.)
Brooks was an interesting choice. Before his most recent position at O’Melveny & Myers he was general counsel at Fannie Mae, where he led an overhaul of its corporate governance. This is significant given that Meridian had been forbidden from doing business with Fannie or Freddie Mac since November when information provided by Meridian on deals was challenged. One can expect Brooks was chosen to rehabilitate Meridian’s reputation in these matters.
Small Change, a crowdfunding platform, made a big change in the form of five new partners, Julian Anjorin, Derek King, Richard Rogers, Mitchell Skomra and Jacob Walsh.
And there was another big broker move when Cushman & Wakefield’s Lauren Kaufman decamped for JLL’s capital markets team.
Mystery men
A lot of those industrial stories we mentioned earlier were part of our Investors Issue last week. But there are other things about real estate investment that were on our mind, too.
Like, who are the high-net-worth investors who are putting their money on real estate, and how does one find them? CO spoke to Clarion Partners’ Janet Souk Lee, who does this very thing, about how to source and reel in the big whale. CO also looked at the generational wealth that is beginning to edge out the institutional buyers in the outer boroughs, and examined the investment that we’ve seen on Third Avenue. But, as a special bonus, we always like to lift the veil on a figure whom we didn’t really know, one of those international buyers of mystery who keep the mystique.
That’s the case with Yellowstone Real Estate Investments, which quietly bought up The New Yorker Hotel last year and was largely a blank to we humble real estate journos.
We tracked down the man behind it, Issac Hera. But no more spoilers. To find out more you’ll have to read the story.
Oh, yeah — Happy Easter!
