Rexford Sells $1.3B in SoCal Industrial Assets as Leasing Rebounds

Rexford Industrial Realty continued its transformation from Southern California’s biggest industrial buyer into one of its largest sellers during the third quarter after completing $1.3 billion in property sales.

The Los Angeles-based real estate investment trust (REIT) sold 25 properties totaling 5.5 million square feet during the quarter, including the previously announced $1.2 billion sale to EQT Real Estate. Rexford has now sold $1.5 billion in properties this year as part of its $2 billion portfolio realignment strategy.

CEO Laura Clark said during the REIT’s third-quarter earnings call Friday that the company expects to complete most of the remaining $500 million in planned sales by the end of this year, although rising Treasury yields could complicate deals.

“While recent increases in Treasury rates are impacting the cost of capital for certain buyers, and bringing more selectivity to the transaction market, engagement around the remaining disposition assets remains constructive,” Clark said.

The EQT portfolio sale, Rexford’s largest deal ever, had a weighted average remaining lease term of just 2.7 years with rents nearly 30 percent above market rates, according to Chief Operating Officer John Nahas. The company also sold three properties totaling approximately 251,000 square feet to owner-users for $86 million.

Conversely, Rexford made no acquisitions during the third quarter. Clark said acquisitions remain part of Rexford’s long-term strategy, but not at the expense of other investments.

“Today, other uses of capital are more compelling,” she said. “We can afford to be patient. … Our portfolio realignment objective was about owning the right real estate and the right markets.”

Meanwhile, Rexford recorded 116 leases covering 3.74 million square feet during the third quarter, up from 2.1 million square feet the previous quarter, and up from the 3.27 million square feet in the same quarter last year. Rexford’s same-property occupancy rose to 96.9 percent from 94.9 percent in the second quarter, although slightly below the 97.1 percent a year earlier. 

“During the quarter, we executed … our second-highest quarter of leasing ever,” Clark said. “We recognize that recoveries are rarely linear, but the direction of the market is encouraging.”

Rexford also reported improving rents on new leases, with net effective spreads increasing 7.1 percent, compared with declines of 2.8 percent in the second quarter.

Despite the leasing bump, Chief Financial Officer Michael Fitzmaurice warned that tenant deals signed near the 2022 and 2023 market peak could hurt rent growth.

Rexford generated $239.1 million in third-quarter revenue, down from $245.5 million in the second quarter, and also down from $253.2 million a year ago. The firm’s share of core funds from operations (FFO) totaled $132.7 million, compared with $141.4 million the previous period, and $141.7 million in the third quarter last year.

Net income reached $14.6 million, rebounding from the $506.9 million loss recorded the previous quarter, but far below the $87.1 million a year ago. (The third quarter included $71.8 million in property impairment charges, compared with $624.8 million in the second quarter.)

Rexford’s development pipeline includes 2.12 million square feet of projects completed or under construction. The projects represent an estimated $726.8 million in investment and are expected to generate between $39 million and $43 million in annualized net operating income.

However, Rexford reduced its 2026 development plan from 1.2 million square feet to 800,000 square feet.

“We’re going to be pretty selective about where we undertake development, starting with our capital allocation thresholds, solving for the appropriate spreads over stabilized cap rate and considering cost of capital,” Nahas said.

During the third quarter, Rexford completed 599,000 square feet of development and repositioning leases. Among the largest was a lease for the entire 214,894-square-foot development at 950 West 190th Street in Los Angeles’ South Bay submarket. The property is expected to be completed in the third quarter of 2027.

Rexford has 819,000 square feet under construction, including projects in the San Fernando Valley, South Bay and City of Industry. The company also pointed to four potential projects with 788,000 square feet through the first quarter of 2027.

Nahas said Rexford expects to begin construction in November on its 401,000-square-foot Hearst development at 9000 Airport Boulevard in the South Bay, targeting demand from advanced manufacturers and other industrial users.

“Overall, our leasing activity was driven most heavily by light manufacturing and advanced manufacturing, which made up about a third of our overall leasing activity this quarter, with another third coming from logistics, distribution and warehouse,” Nahas said.

Gregory Cornfield can be reached at gcornfield@commercialobserver.com.