Zach McHugh of Sitex Group: 5 Questions

There’s been a bit of uncertainty in the air recently when it comes to the U.S. industrial market, largely due to ever-changing tariff policies.

But one company isn’t listening to the noise. Sitex Group, a New Jersey-based real estate private equity firm focused on acquiring, developing and repositioning industrial assets, has closed several deals recently along the East Coast.

In the last 30 days alone, Sitex closed on three major warehouse deals in New York and New Jersey. Those newly acquired properties add to Sitex’s portfolio of more than 3 million square feet of industrial properties across New York, New Jersey and South Florida.

Zach McHugh, principal of Sitex, spoke with Commercial Observer this week to discuss current trends in the industrial market, the firm’s tenant mix, and how the industry has been affected by tariffs.

This interview has been edited for length and clarity.

Commercial Observer: How’s the industrial market looking in the tri-state area lately? What are the current trends you’re seeing in terms of rents and tenants?

Zach McHugh: To answer that, we have to go a couple years back, when interest rates started moving really, really fast and caught landlords, developers and tenants off guard a bit. What you saw on the real estate side was people got in trouble, especially with development sites. They were stuck in capital stacks that were outdated and not current with the times. 

And so, as those super-cheap loans started to roll over, and they needed to refinance out that cheaper debt with substantially more expensive debt, people got into trouble on the real estate side and on the tenant side. That rapid increase in interest rates really put a pause on decision-making.

Fast forward to what I would call six months ago, we really started to see decisions being made from the tenant side. And that could be good or bad, right? That could be one tenant saying, “I’m shedding a bunch of excess real estate. I don’t need it. I’m moving on from it. I’m going to go sell it. I’m going to vacate at the end of my lease expiration.” So that’s one decision tree. The other is tenants who are saying, “I want to plan for the future — for the next three, five, 10 years — and I’m going to start taking more space.”

Either way, whether it’s positive or negative, the important thing is that people are making decisions, whereas before no one was making any decisions. They were kicking the can down the road. So, if people are saying, “I’m shedding real estate” or “I’m taking more real estate,” the good thing is that things are happening in the market, versus just sort of stagnation.

I would say the majority has been tenants taking more space. And, don’t get me wrong, there have been groups saying, “I’m reducing my footprint.” That’s actually generated a couple of investment opportunities for us personally that we recently closed on. So you take the good with the bad. It produces some opportunity, and, then, I think on the upside, you’ve got a lot of tenants taking more space.”

What deals has Sitex completed recently? I know the company was buying a few industrial properties in Brooklyn and Queens in recent years.

We just closed on what I would say is a very interesting property in the Bronx, something that we like a lot. We closed that at the end of December. It had to be a year-end closing, so we squeezed that in. And then we just closed in the last 30 days two more deals in New Jersey, sort of low-coverage warehouse plays.

We sort of run the gamut within the industrial vertical of real estate. Within industrial, you’ve got traditional warehouses — like, if you’re driving down I-95 or the Jersey Turnpike, and you see those huge warehouses. We own a couple of those.

Then there’s also small warehouses with multiple tenants. That’s called small-bay, typically. We own a ton of that stuff, both in this region and in South Florida. And then there’s cold storage. We own one of those right now. We used to own two more. We just sold those.

And then there’s IOS, which is industrial outdoor storage. I don’t love that name. I prefer “low-coverage warehouses.” We own a fair amount of that as well. So we run the gamut. And it can be anywhere from a small $5 million deal up to a multi-building portfolio worth several million dollars.

Where is leasing demand coming from today? What does the ideal industrial tenant look like, and what are their needs?

For a long time, a lot of retailers were on pause. But the retailers have started to come back and take industrial space to service their online footprints.

You’re also starting to see a lot of third-party logistics companies who are servicing those retailers. Bigger retailers usually have a huge warehouse presence, but then there’s other retailers that don’t do their own distribution. Those guys typically use third-party logistics groups, so we’re seeing a ton of 3PL activities.

We’re also seeing substantial e-commerce bounceback — the Amazons of the world. And then on the low-coverage, multi-tenant, small-bay stuff, we’re seeing a lot of service providers, like an HVAC supplier, a plumbing supplier, general contractors, or subcontractors that need outdoor space in addition to a building. We’re seeing a lot of those groups come back to the market. 

Overall, it’s feeling very healthy across multiple different verticals, which is encouraging.

Have you noticed any effects from the changing tariff policies on the industrial market? Has it slowed any decision-making for Sitex?

I wouldn’t say it’s slowed decision-making for us, but it definitely slowed decisions, coupled with higher interest rates. Just as everybody was starting to feel pretty good about interest rates, that’s when you get hit with tariffs. So tariffs extended that lack of decision-making for another 12 months.

I think what you’re seeing now is most tenants are saying, “The new normal is abnormal, and it’s going to be changing, and I need to make decisions regardless.” So I think you’re starting to see the tariff hesitation burn off, and a lot of people are making real estate decisions through the uncertainty.

What are Sitex’s plans for the coming year? Any plans to expand into new regions?

We might be looking at a couple new regions. We’re New York, New Jersey and Florida. That’s our backyard. I think the bulk of our business will always be New York and New Jersey.

I do think that there’s going to be some expansion plans — maybe not in 2026, but certainly in 2027. We’re just going to continue looking for the same stuff that we’ve been buying, which is sort of everything across the industrial real estate sector.

Isabelle Durso can be reached at idurso@commercialobserver.com.