COMMERCIAL A Think Real ty Publ icat ion VOLUME 4
Diversify Your Portfolio with Self-Storage ADAPTATION HAS BEEN EASY FOR THIS ASSET CLASS AND INVESTORS ARE NOTICING
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assets, storage was an easy adaptor to digitized operations. Storage has a track record of being a great performer both in economic upturns and downturns, and during the last two recessions, self-storage was one of the top performing asset classes. The COVID-19 pandemic over the last year and a half has been no exception. With storage facilities pivoting to contactless bookings and savvy online software, customers can book and pay online without ever seeing a real person, and the process has never been easier. In addition, autopayments have cut down on delinquencies in some instances as well. STORAGE RATES ON THE RISE Storage can be a lucrative business with long term customer retention and therefore steady cashflow for the average stabilized operating environment. According to Yardi Matrix, rental rates have grown 12.4% year over year nationwide for climate-controlled units and 10.4% for non-climate-controlled units. Experts don’t see this number trending downward anytime soon, and customers aren’t willing to move out of their unit for an extra $10-20 a month increase. Busy W-2 professionals and savvy investors looking for cash flow or long-term equity gain are diversifying their portfolio with storage. If you’re looking for a great source of passive income within an asset class that is recession resistant, can be run with less overhead and manpower, and is trending upward, then take a deeper look into storage and consider it as your next portfolio addition. Learn more about passive storage investments and view our open offerings at spartan-investors.com. •
Diversify Your Portfolio with Self-Storage ADAPTATION HAS BEEN EASY FOR THIS ASSET CLASS AND INVESTORS ARE NOTICING
by Lauren Brychell
D id you notice how the gov- ernment didn’t place rent restrictions, moratoriums, etc. on self-storage during the pandem- ic? That’s because they not focused on someone’s stuff that has been collecting dust for years sitting in a metal box. While single and multi-family landlords have been feeling the heat, self-storage is gaining popularity as an alternative asset class that plays by its own set of rules. Retail and institutional investors alike are turning to storage to invest large amounts of capital in, whether actively or passively due to many benefits which are becoming more widely known. WHY DIVERSIFY? If you’re like many Americans, you may be hesitant to place large
amounts of capital into the stock market, as many are predicting a correction is on the horizon. With talk of inflation and rising interest rates, many people are looking to move money to hard assets that do well in both economic booms and busts. An interest rate increases of just a point or two can significantly affect both monthly payments and total payments over a loan’s life- time, and residential and multifamily investors are starting to pay close attention. Diversified portfolios have been proven to produce higher long- term returns, with less risk, than any individual investment type. RECESSION-RESISTANT ASSET CLASS While 2020 forced difficult changes for most commercial real estate
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INVEST PASSIVELY IN SELF STORAGE Learn How at spartan-investors.com
Scan Me!
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10 REASONS TO INVEST IN MULTIFAMILY
ABOUT THINK MULTIFAMILY
During our investing career, we have personally endured two recessions, three global epidemics, a pandemic, and multiple oil and gas crises. Despite all of this global volatility, our faith in multifamily real estate investing has not wavered. We firmly believe multifamily real estate investing is the safest, most predictable investment vehicle to leverage and grow your net worth. For the past 26 years, we have been investing in multifamily properties. During this time we have experienced incredible returns, great tax breaks, and more control over our time and finances than ever before. Getting started in multifamily investing is anything but easy, yet the benefits far outweigh the challenges. We sincerely hope this document is both useful and inspirational as you look to expand your investing strategy. Think Multifamily is here to train and invest with aspiring multifamily real estate investors to help them break into the multifamily market and rapidly grow their net worth. We would love to help you in your multifamily investing journey. There are many myths and misconceptions about multifamily investing that are clarified in the following pages. If you have any questions as to how to get started, please contact info@thinkmultifamily.com . We will help you take the next steps to changing your family’s financial future.
info@thinkmultifamily.com
www.thinkmultifamily.com
Sincerely,
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Mark & Tamiel Kenney, Founders of Think Multifamily
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Multifamily Investors Venture Beyond Gateway Markets
WHERE TO FIND NEW OPPORTUNITIES
by Joe Fairless
H istorically, most multifamily investors preferred to invest in gateway markets. Colloquially known as the “Sexy Six,” these markets include Los Angeles, San Francisco, and Seattle on the West Coast and New York, Boston, and Washington D.C. on the East Coast. For decades, institutional investors (REITs, pension funds, and endowments) refused to consider secondary and tertiary markets. In fact, it’s a well-worn joke in the multifamily industry that if a city didn’t have a professional football, basketball, and baseball team then mega funds like Blackstone and institutional investors had no interest. By and large, most national multifamily investors felt the same as the big players. Even regional players shied away from smaller markets. But attitudes about non-gateway markets have shifted significantly. Today, multifamily investors – regardless of size or scale – are not only willing to consider buying in secondary and tertiary markets, but they’re eager to do so. It’s not only U.S. investors that are expanding their horizons. Foreign investors are also eager to deploy capital into non-gateway markets, even if they’ve never heard of Little Rock or Colorado Springs. WEIGHING THE RISK Multifamily investors’ past preference for gateway markets wasn’t rooted in big city snobbery or superiority. Instead, it grew from very real concerns regarding exit strategies. The sentiment was that secondary and tertiary markets were inherently riskier because of the limited pool of investors interested in buying there. Many investors feared that when it came time to dispose of an asset, they would not only face challenges finding a buyer, but experience pricing pressure and depressed returns due to the limited demand. The bias against secondary and tertiary markets was a vicious cycle that took a pandemic to break.
Prior to the COVID-19 pandemic, Americans were stuck in one place – almost literally. In 2019, fewer Americans changed residence than in any year since 1947, when the Census Bureau first began collecting annual migration statistics. Between March 2019 and March 2020, the percentage was 9.3 percent – a post-World War II low. The pandemic jumpstarted residential mobility. Many people abandoned large urban metros to get away from the virus. For others, work-from-home mandates made it possible for them to live where they wanted instead of where they worked. From April 2020 to April 2021, 16 percent of full-time workers relocated, according to RealPage. GATEWAY MARKETS LOSE RESIDENTS Many Sunbelt markets have emerged as in-migration magnets, primarily due to their affordability and quality of life. People fled the inflated rental rates in gateway cities and made their way to less expensive areas. The Sexy Six markets experienced notable population declines in 2020 and into 2021, according to U.S. Census Bureau data and RealPage. New York suffered the most dramatic annual net population decline, losing more than 108,000 residents in 2020, a total population decrease of 0.6 percent. This marks the fourth consecutive year of population loss for New York. On the other side of the country, Los Angeles mirrored New York’s out-migration. More than 128,000 residents left Los Angeles in 2020. In fact, California’s biggest markets – Los Angeles, San Francisco, and San Jose – collectively lost hundreds of thousands of residents. These markets also happen to be among the most expensive apartment markets in the nation, with rents of $2,200 to $2,800 as of April 2021, according to RealPage.
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FEAR OF MISSING OUT ON GROWTH With more companies relocating from high-cost states and more Americans saying “See ya” to massive metro areas, multifamily investors are following them. The AFIRE International Investor Survey, which surveys nearly 200 organizations from 24 countries with roughly $3 trillion assets under management (AUM), found that more than six in 10 respondents expect to increase their investment in tertiary cities in the next three to five years. That number rises to eight in 10 for investment in secondary cities. In 30 years of AFIRE surveys, no tertiary city has ever placed in the top three. But this year, Austin took the number-one position, heralding a noteworthy shift in strategy toward secondary and tertiary markets. Historically, when investors ventured beyond gateway markets, they did so because they were hunting for yield and thought they could find better pricing in secondary and tertiary markets. (It’s worth noting that as of the third quarter 2021, the average price per unit in the six major metros was $297,618 versus $201,125 per unit in non- major metros.) Today, investors are motivated to deploy capital in secondary and tertiary markets because they’re afraid that if they don’t invest in these markets, they’ll miss out on the next decade of income growth and price appreciation. Last year, Austin saw its resident base increase by nearly 67,200 people, or three percent, according to RealPage. This was the strongest percentage growth rate reported among markets with one million or more residents nationwide. During the same period, three smaller markets experienced faster growth than Austin: The Villages, Fla., St. George, Utah, and Myrtle Beach, S.C. recorded rates between 3.4 - 3.9 percent. The total population of those cities is roughly 100,000 to 300,000 residents. Apartment occupancy is tight almost everywhere, according to RealPage. With recent demand so strong, occupancy is 200 basis points to 290 basis points above normal in Austin, Charlotte, Nashville, Raleigh/Durham, Salt Lake City and San Antonio. RECORD-BREAKING DEAL VOLUME This year will likely end with record deal volume in the multifamily sector, according to Real Capital Analytics 3Q2021 U.S. Apartments Capital Trends report. For the first three quarters, deal volume totaled $178.5 billion, which would be a near-record level of activity for a full year. In fact, the $78.7 billion in deal volume for Q3 2021 was higher than the average annual totals from 2008 to 2011, according to Real Capital Analytics. Only in 2018, had
apartment deal volume passed the $50-billion mark in a third quarter. Compared to the same period last year, deal volume was up 192 percent and pricing was up 16.3 percent, according to Real Capital Analytics. The firm attributes the price increase to two main factors: 1) buyers became more optimistic about the economic outlook and were willing to pay more for properties and 2) sellers were also more optimistic and asked for higher sales prices. Non-major markets accounted for $63.2 billion in deal volume during the third quarter, an increase of 209 percent, according to Real Capital Analytics. The total numbers of properties that changed hands in these markets increased 97 percent to 2,038. Of the top 25 markets for apartment investment, all but four experienced record high levels of activity through the first three quarters of 2021. According to Real Capital Analytics, Los Angeles, Chicago, NYC Boroughs, and Washington D.C./Virginia suburbs share a common trait: they usually support urban office hubs. For the first time ever, Manhattan did not make the list of the top 25 apartment markets. The island’s ranking has been steadily declining since 2017 due to rent control regulations among other things. In contrast, several secondary and tertiary markets rank in Real Capital Analytics’ top 25 markets for apartment investment:
• #6 Denver – 100% YOY change • #7 Austin – 146% YOY change • #9 Raleigh-Durham – 134% YOY change • #10 Orlando – 105% YOY change • #11 Tampa – 103% YOY change • #12 Charlotte – 101% YOY change • #15 San Antonio – 131% YOY change • #20 Nashville – 121% YOY change
All markets listed above experienced record YTD total deal volume, according to Real Capital Analytics. And, Raleigh/Durham achieved its highest-ever ranking. •
Joe Fairless is the Co-founder of Ashcroft Capital which has over $1B in assets under management. Joe created the podcast, Best Real Estate Investing Advice Ever Show, which is the longest-running daily real estate podcast in the world and generates over 500,000 monthly downloads. He is also a proud Member of the Texas Tech Alumni Advisor Board for the College of Media and Communication, as well as being recognized as Outstanding Alumni at Texas Tech University, where he is a former Adjunct Professor. He is currently a Junior Achievement Board Member and Volunteer for the Cincinnati chapter and has been recognized by the Junior Achievement’s Free Enterprise Society. Joe volunteers at Crossroads Hospice and was recognized as Multifamily Investor of the Year by Think Realty Magazine.
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weather, hotel bookings have begun to mildly slacken. SUMMER TO AUTUMN TRANSITION REVEALS SEASONAL WALK BACK IN VISITATION. From the start of August into the first weekend of October occupancy followed its traditional pattern, declin- ing 630 basis points to 61.7 percent. The reduction was largely seasonal, with the start of in-person schooling limiting travel for many families. For the same window in 2019, occupancy fell by a similar 600-basis-point mar- gin. Rising COVID-19 infection rates tied to the delta variant may have also weighed on travel plans. Of the areas reporting steep climbs in cases, many were also favored vacation spots. Moving into 2022 hotel room demand nationally will likely follow typical sea- sonal patterns while trailing pre-pan- demic levels by a shrinking margin. Property performance will still vary significantly by location and service level, however. LEISURE DEMAND STILL DOMINANT IN 2022. Hotels in popular vacation des- tinations are projected to perform best next year, including those near beaches and parkland. These types of settings, including the Florida Keys, Colorado Springs and Virginia Beach, captured the most demand during the spring and summer. Hotels in drive-to locations reliant on regional vacationers will contin- ue to draw travelers; however, they may lose some guests to more well- known areas as peoples’ comfort with flying improves and barriers to international travel lighten. There- fore, while leisure travel is expected to grow further in the coming year, room demand may be more diffused across markets as the overall econo- my will be more widely open.
Hotel Outlook Remains Bifurcated in 2022
WILL INVESTMENT DEMAND SURGE BACK?
by John Chang
SUMMER VACATIONS JUMP-STARTED RECOVERY.
2019 volumes, while hotel occu- pancy had roughly doubled from where it began 2021. Nightly rates improved even more notably, with the average daily rate for July sur- passing the same metric from two years prior by 6 percent. Although partially mitigated by inflation, the rapid recovery in ADR underscored the strong demand to get away that manifested earlier this year. As the calendar advanced into the start of the academic year and colder
The U.S. lodging sector entered the autumn season having made up substantial ground during the spring and summer months. Loos- ened capacity restrictions, vac- cine availability and pent-up travel demand led to a marked increase in trips taken and rooms occupied. By the end of July foot traffic through airport security checkpoints had recovered to about 80 percent of
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POTENT NEED TO UNWIND LIFTS OUTLOOK FOR RESORTS NEXT YEAR. Resorts are likely to benefit in
improved operations in 2022 but will remain the most troubled segment. Through August of this year hotels in core areas reported RevPAR values more than 30 percent below lev- els from two years prior, a steeper margin than for most other hotels. The problem is compounded in the country’s largest gateway markets that typically cater to numerous international visitors, including New York and San Francisco. Both metros reported occupancy rates for the month of August that were 30 percentage points or more below the same period in 2019 and had the highest rate of temporary room clo- sures. The return of certain health precautions in these metros may dissuade some visitation to the area until the pandemic notably improves. Overall, a prolonged drought in demand in many densely packed areas leaves a long road ahead for financial recovery. AFTER PERIOD OF CAUTION, INVESTORS CLEAR THE BENCHES AND PURSUE HOTEL DEALS. Despite the lingering challenges facing the lodging sector, investors are showing no signs of backing off. Hotel transaction activity has surged this year, with more properties changing hands between April and September than in all of 2020. While ample capital was set aside at the onset of the health crisis, anticipat- ing widespread discounting, actual distress has been comparatively limited. Competition for listings has instead lifted the average sale price for assets over the 12-month period ended in September to a new high of $117,000 per room. The mean cap rate over the same span was 8.3 per- cent, a compression relative to ear- lier in or even before the pandemic, when the average yield was in the mid- to high-8 percent zone. Buyers are gravitating to markets where
hotels outperformed this year or are well positioned for next year. This includes assets in California, Florida, Texas and North Carolina. As more hotels report positive operations, investor criteria will widen. Even in more challenged environments such as New York, the investment pipeline is still larger than in recent pre- health crisis years as investors come off the sidelines. This behavior illus- trates that while hotels across the country may follow more than one path forward in the coming months, the long-term outlook for the sector is overwhelmingly positive. •
the months ahead as vacationers venture farther and seek relaxing settings after a challenging peri- od. As of August 2021, resorts were still about 15 percent less occupied on average than two years prior, although ADR had climbed 24 per- cent above the same benchmark. Higher nightly rates are offsetting fewer reservations, resulting in an above-pre-pandemic level of revenue per available room. Even if a price ceiling on ADR manifests, resort RevPAR should continue to improve in 2022 as occupancy levels climb closer to traditional levels, aided by more international visitors.
John Chang serves as the National Director of Research Services for Marcus
& Millichap. He is responsible for the production of the firm’s vast array of commercial real estate research publications, tools and services. Under his leadership, Marcus & Millichap has become a leading source of market analysis, insight and forecasting, and the firm’s research is regularly quoted throughout the industry and in mainstream business media. John oversees a team of dedicated real estate research professionals who produce the firm’s more than 1,000 annual market research publications and conference presentations. These detailed reports, analyses and presentations integrate economic and financial market trends with insights on all major commercial property types including: Hotels, Industrial, Manufactured Housing, Multifamily, Office, Medical Office, Retail Multi- Tenant, Retail Single-Tenant, Self-Storage and Seniors Housing. John is a seasoned industry analyst who has been quoted in numerous publications and is an active member of the NMHC Research Foundation Advisory Committee, the ICSC North American Research Task Force and the NAIOP Research Foundation. He regularly presents at a wide range of conferences and events hosted by industry- leading organizations such as the NMHC, NAIOP, ULI, CCIM, ICSC, SSA and numerous others. John joined Marcus & Millichap in April 1997 as a Research Manager in the Seattle office. After holding executive marketing and e-business positions with premier residential real estate firms in the Pacific Northwest, he rejoined Marcus & Millichap in November 2007 as the head of its Research Services division. John was elected as Vice President in 2010, advanced to First Vice President in 2013 and promoted to Senior Vice President in 2018.
BUSINESS TRAVEL OUTLOOK MIXED.
Hotels that cater to business trav- elers will continue to face hurdles next year. Travel for business pur- poses has so far lagged leisure trips in recovery. While vaccines and tests are widely available, the potential for new coronavirus variants presents ongoing safety concerns that will prompt many employers to minimize staff travel. As such, the number of business trips are likely to trail more traditional levels by a wider margin than the leisure segment. That does not mean business travel will not improve next year in comparison with 2021. Barring a significant reversion in the health crisis, more conven- tions and trade shows are scheduled in 2022 than last year, which should prompt greater professional travel. SELECT NUMBER OF HOTELS CONTINUE TO BE SEVERELY IMPAIRED. Hotels in major urban centers and frequent convention markets will see
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Industrial Real Estate Report: How E-Commerce & Global Shipping Defined 2021
adapt to online shopping, which required additional sorting and ful- fillment centers. The result has been a boon of massive industrial properties that are being developed with e-com- merce in mind, as evidenced by a CommercialSearch study analyzing the largest industrial properties completed in the first half of 2021: The study found that the three largest completions were all devel- oped for e-commerce and tech giant Amazon—while also being signifi - cantly larger than the next-biggest new properties. Specifically, the larg - est industrial completion in the first half of the year—Amazon’s Logisti- Center in Wilmington, DE, developed by Dermody Properties—spans more
by Lucian Alixandrescu
E conomic downturns, like the one caused by the pandemic, have ripple effects that are felt at every level of the economy—and the real estate market was no exception to this rule. The effects of work-from- home mandates and reduced con- sumer spending were felt in commer- cial real estate, though some asset classes fared better than others. Notably, industrial real estate didn’t see the same slowdown as other areas of commercial real estate. In this case, the primary cause was the demand for warehousing, cold storage and flex space, which was generated by e-commerce—a trend that was already picking up steam prior to the pandemic and was then propelled into the limelight by COVID-19. Now, with factory activity gradually picking up and even higher demand for global shipping, supply chain logistics are more important than ever in the global economy, and industrial space—especially in port markets—is an essential link. With that in mind, below are some highlights from the industrial real estate market this year, as well as a look at the Q4 industrial pipeline. THREE 3MSF WAREHOUSES DEVELOPED FOR AMAZON IN 1ST HALF OF 2021 Online shopping truly entered the mainstream during the pandemic, as quarantines and stay-at-home
orders meant that consumers became accustomed to having their orders delivered to their homes or picked up curbside. Consequently, online retail giants such as Amazon saw spikes in demand, and brick- and-mortar retailers also had to
The Largest Industrial Properties Completed in First Half of 2021
MARKET
PROPERTY NAME
LOCATION COMPLETION SQUARE FOOTAGE OWNER
WILMINGTON, DE
PHILADELPHIA LOGISTICENTER AT I-95 WILMINGTON
JUNE
3,833,950 DERMODY PROPERTIES
6060 GOLDEN BEAR GATEWAY
MT. JULIET, TN
NASHVILLE
JUNE
3,600,000 AMAZON
RICHMOND, TX
HOUSTON
10507 HARLEM ROAD
JUNE
3,402,028 AMAZON
LOCKBOURNE, OH
COLUMBUS
THE HUB - BUILDING 6
FEBRUARY
1,590,472 XEBEC REALTY PARTNERS
MEDLINE GRAYSLAKE DISTRIBUTION CENTER
GRAYSLAKE, IL
CHICAGO
MAY
1,445,396 MEDLINE
CHICAGO, IL
CHICAGO
EXCHANGE 55
JUNE
1,326,566 HILCO REAL ESTATE
ELWOOD LOGISTICS CENTER
GOODYEAR, AZ
PHOENIX
MARCH
1,302,434 TRATT PROPERTIES
HAWKS PRAIRIE LOGISTICS CENTER· BUILDING 1
LACEY, WA
SEATTLE
MARCH
1,287,510 NORTHPOINT DEVELOPMENT
70 EAST LOGISTICS CENTERON
PATASKALA, OH
COLUMBUS
FEBRUARY
1,232,149 STAG INDUSTRIAL
CHICAGO WEST BUSINESS PARK - 801 EAST GURLER ROAD
DEKALB, IL
CHICAGO
JUNE
1,222,400 ELMTREE FUNDS
Data provided by Commercial Edge
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NATIONAL AVERAGE INDUSTRIAL RENT UP 3.8% Y-O-Y, CONCENTRATED IN COASTAL MARKETS CommercialEdge’s September national industrial report found another defining feature of the industrial real estate market this year: A growing focus on port markets. While the global container shipping market experienced explosive growth in 2020, this year surpassed previ- ous records as far as the number of containers processed, which led to rolling delays between different points in the supply chain. And, as a result of port congestion—which has even forced the ports of Los Angeles and Long Beach to extend their gate hours—industrial real estate in port markets saw the largest increases in average asking rents. Consequently, the national average rent increased 3.8 percent—although price hikes were even more significant in some high-volume markets.
than 3.8 million square feet and was built on a 142-acre lot that formerly housed an auto assembly plant. The next two completions are equally impressive in scale: A 3.6-million-square-foot fulfillment center in Nashville, TN, as well as another warehouse spanning 3.4 million square feet in Richmond, TX. Amazon’s push for more industrial space comes in the context of a consistently growing number of orders from online shoppers everywhere in the U.S., but also to ease the supply lines of the company’s operations amid global logistical backlogs. The same study found that, of largest industrial transactions from the first half of 2021, three deals
cost the properties’ new owners than $300 million each. The largest transaction—the sale of the Colorado Technology Center in Denver—cost private investment firm Starwood Capital Group $392 million in one of the largest industrial real estate deals in the state’s history. Meanwhile, in Inland Empire, a dis- tribution center leased to Costco sold for $345 million in May this year after being purchased for $215 million by CenterPoint in March 2020, highlight- ing growing investor interest in prime industrial real estate. Other notable transactions also took place in com- petitive industrial markets such as New Jersey and Las Vegas for $335 million and $247 million, respectively.
The Largest Industrial Sales in First Half of 2021
MARKET
PROPERTY NAME
SALE PRICE SQUARE FOOTAGE BUYER
COLORADO TECHNOLOGY CENTER AND LOUISVILLE CORPORATE CAMPUS A T CTC -BUILDINGS B & C
STARWOOD CAPITAL GROUP
DENVER
$392,900,000 1,672,889
Specifically, prices in Inland Empire were up by 6.6 percent
year-over-year (Y-o-Y) as demand for industrial space increased in the market, which also functions as a major corridor for goods pass- ing through the port of Los Ange- les. Meanwhile, prices in the Los Angeles industrial market itself also grew by a comparable margin of 6.5 percent. Up next in price growth were New Jersey with 6.2 percent and Seattle with 5.7 percent. How- ever, Orange County, CA, boasted the highest average rent in August at $11.42 per square foot, almost double the national average of $6.35 per square foot. At the same time, high-demand commercial real estate markets in the Southeast saw considerable price hikes: Nashville, Atlanta and Mem- phis witnessed increases of 5.4, 4.5 and 3.7 percent, respectively. Con- versely, industrial real estate in the Midwest was on the opposite end with
INLAND EMPIRE 5600 EAST AIRPORT DRIVE
$345,000,000 1,630,451 COSTCO WHOLESALE
GOLDEN TRIANGLE INDUSTRIAL PARK AND 3330 EAST LONE MOUNTAIN ROAD
LAS VEGAS
$335,600,000 2,423,341 CLARION PARTNERS
PROPERTY RESERVE
NEW JERSEY
10 EDISON
$247,000,000 900,022
INLAND EMPIRE 3994 & 3996 SOUTH RIVERSIDE AVENUE $231,200,000 1,396,576 LINK LOGISTICS
NORTHWEST CORPORATE PARK BUILDINGS I, 111, VIII, X, XIV, 2500 & 2400-2410 VANTAGE DRIVE AND NORTHWEST BUSINESS PARK I, 111, VI, VII
HIGH STREET LOGISTICS PROPERTIES
CHICAGO
$229,990,000 2,638,438
ALLENTOWN- BETHLEHEM 951 WILLOWBROOK ROAD
$201,500,000 1,031,524 CENTERPOINT PROPERTIES
MIAMI
4040 & 4210 WEST 108TH STREET
$188,400,000 1,047,495 CENTERPOINT PROPERTIES
INLAND EMPIRE 2151 SOUTH VINTAGE AVENUE
$184,170,000 766,235
DUKE REALTY
CBRE GLOBAL INVESTORS
ORANGE COUNTY IRVINE CROSSINGS - 17871 VON KARMAN AVENUE & 17836 GILLETTE AVENUE
$180,750,000 395,673
Data provided by Commercial Edge
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Detroit prices contracting by 1.8 per- cent. Cincinnati saw the largest price growth in the Midwest with 3 percent.
VACANCIES STAY LOW IN TRANSPORTATION HUBS, 500MSF OF INDUSTRIAL
STOCK UNDER CONSTRUCTION Vacancy rates were also pushed down by growing demand in high-volume transportation hubs, with Inland Empire boasting the low- est vacancy rate—a mere 1.2 percent in August. Neighboring Los Angeles and Orange County, CA saw vacan- cies rest at 3.2 percent and 3.5 per- cent, respectively, while the figure was 3.6 percent in New Jersey. Not to be outdone, some inland hubs also had vacancy figures below the national average of 5.9 per- cent, including Columbus, OH, at 2.5 percent and Indianapolis at 2.7 percent. However, despite having similar vacancy and absorption rates to coastal markets, many industrial and transportation hubs did not see large rent increases, thanks to a new supply of industrial properties. Spe- cifically, Columbus rents increased by only 1 percent during the last 12 months, while that figure was 2.3 percent in Indianapolis. Currently, more than 500 million square feet of industrial space is under construction nationwide— amounting to 3.2 percent of the cur- rent stock—while another 509 million square feet is in the planning stages. It’s worth noting that these figures are historically high for an industrial real estate market that’s hard-pressed for more supply. Simultaneously, the record amounts of stock in the pipeline may not fill the demand gap, as it’s more skewed toward inland markets with more developable space than dense coastal markets, where new industrial space is scarcer. For instance, Dallas-Fort Worth has the most industrial stock under
construction at 34.1 million square feet—4.2 percent of the market’s total. Phoenix is next with 25.5 mil- lion, which represents 9.6 percent of current industrial stock. To the west, Inland Empire has 22 million square feet of industrial stock in the pipeline—3.8 percent of its current inventory—although that may still not be enough to compensate for the con- stant demand. Nearby, Los Angeles and Orange County, Calif., have indus- trial space in the pipeline that’s only equivalent to 1.2 percent of their cur- rent stock, which may translate into further spikes in average rent costs. TESLA & AMAZON POISED TO DELIVER Q4 2021’S LARGEST INDUSTRIAL PROPERTIES Several high-profile industrial properties are scheduled to be com- pleted in the final quarter of 2021: The 15 largest industrial prop- erties scheduled for a Q4 comple- tion illustrate the same trend in the industrial market as the largest completions in the first half of the year: Most of these properties are owner-occupied or single tenant,
being purpose-built with online retail in mind. One notable exception to this trend is the #1 entry—electric vehicle (EV) maker Tesla’s new factory in Aus- tin, Texas, which they’ve dubbed the Gigafactory or Giga Texas. The prop- erty will span a reported 4 million square feet, although that estimate may increase upon its scheduled December completion. This makes the new factory the largest auto- motive plant in the U.S. and a close contestant for the title of the largest industrial completion of the year, competing with Amazon’s new, 4-million-square-foot distribution facility in Colorado Springs, CO. Tes- la hopes to begin production at Giga Texas in early 2022, with the property playing a major role in the company’s efforts in the growing EV market. As expected, Amazon is behind the four next-largest projects in the pipeline for Q4. The largest of these is expected to be a 3.8-million- square-foot distribution and logis- tics center in metro Austin at 2000 East Pecan St., around 23 miles from Tesla’s Gigafactory. Amazon is also
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expecting new industrial properties in Bridgeport, CT; Albuquerque, NM; and Los Angeles to open in Q4, all of which will be larger than 2 million square feet. However, the e-commerce giant’s expansion was matched by tradi-
tional brick-and-mortar companies pushing to meet new online demand. For example, the sixth largest Q4 completion is a distribution center to be occupied by clothes retailer Ross in Houston. Two more large indus- trial properties (owned by Floor &
Decor and Clayco) are also slated to be completed this quarter in Hous- ton. The tech sector was also repre- sented on the list, as chipmaker Intel expects an expansion of its facilities in Portland, OR, to be finalized in December, increasing its industrial space presence in the city by 1.5 mil- lion square feet. All of the aforementioned properties are owner-occupied or purpose-built, single-tenant facilities. However, two properties—both of which are being built in metro Philadelphia—are among the 15 largest in this quar- ter’s pipeline that did not have a pre-contracted tenant: The 1.3-mil- lion-square-foot 780 South DuPont Hwy. and the 1.2-million-square-foot continuation of the same trends that presented themselves at the beginning of the pandemic: The widespread popularization of online shopping meant that retailers of all types scrambled to set up the logistics necessary to fulfill the wave of orders. Simultaneously, pressure on global supply chains bled into the industrial real estate market as properties in port markets became increasingly sought after. With 500 million square feet of industrial stock under construction and a further 500 million in the planning stages, supply may pick up to meet demand. Even so, some markets may continue to see similarly low vacancy levels well into 2022, with market conditions constantly shifting. • Tristate Distribution Center. In many ways, 2021 saw a
The Largest Industrial Properties to Be Completed in Q4 2021
RANK PROPERTY NAME
METRO
LOCATION
COMPLETION SQUARE FOOTAGE OWNER
1 GIGA TEXAS
AUSTIN, TX
DEL VALLE, TX DECEMBER 4,000,000 TESLA
PFLUGERVILLE, TX
2 2000 EAST PECAN STREET
AUSTIN, TX
OCTOBER
3,800,000 AMAZON
AMAZON DISTRIBUTION CENTER -1215 KENNEDY ROAD
BRIDGEPORT NEW HAVEN, CT WINDSOR, CT
3
NOVEMBER 3,600,000 AMAZON
ALBUQUERQUE, NM
ALBUQUERQUE, NM
4 PROJECT CHICO
OCTOBER
2,500,000 BH DEVCO
SAKIOKA FARMS BUSINESS PARK - AMAZON ROSS STORES DISTRIBUTION CENTER INTEL RONLER ACRES CAMPUS - EXPANSION
LOS ANGELES, CA
5
OXNARD, CA
OCTOBER
2,315,252 AMAZON
6
HOUSTON, TX BROOKSHIRE, TX NOVEMBER 2,165,000 ROSS STORES
PORTLAND, OR - WA
7
HILLSBORO, OR DECEMBER 1,510,650 INTEL
8 5320 CEDAR PORT PKWY
HOUSTON, TX BAYTOWN, TX DECEMBER 1,502,838 FLOOR & DECOR
9 18800 BLOCK OF EAST INDUSTRIAL HOUSTON, TX NEW CANEY, TX DECEMBER 1,500,400 CLAYCO
PHILADELPHIA, PA-NJ-DE-MD NEW CASTLE, DE NOVEMBER 1,350,000 AMAZON
10 780 SOUTH DUPONT HWY
MAJESTIC COMMERCENTER - SHAMROCK FOODS
11
DENVER, CO
AURORA, CO
OCTOBER
1,300,000 SHAMROCK FOODS
INLAND EMPIRE, CA
12 728 WEST RIDER STREET
PERRIS, CA
DECEMBER 1,203,449 DUKE REALTY
TRISTATE DISTRIBUTION CENTER -BUILDING 1
PHILADELPHIA, PA-NJ-DE-MD
PENNS GROVE, NJ
13
DECEMBER 1,202,230 PANATTONI DEVELOPMENT
With previous experience as a freelance writer, Lucian Alixandrescu has been applying his research skills as a copywriter for CommercialCafe and PropertyShark since 2019. His work has been featured in numerous publications including Bisnow and Forbes.
14 PROJECT REPEAT BIRMINGHAM, AL
BESSEMER, AL OCTOBER
1,200,000 CLAYCO
MEDLINE DISTRIBUTION CENTER
CAROLINA TRIANGLE, NC ELLAND, NC
15
NOVEMBER 1,200,000 MEDLINE INDUSTRIES
COMMERC IAL REV I EW : : 13
Data provided by Commercial Edge
Murano
Commercial Real Estate Post-COVID THE THREE STAGES OF A POST-CRISIS COMEBACK
by Grant Cardone
A lthough it has been over ten years since the finan - cial crisis of 2008, I still remember how this coun- try got completely rocked. I’ll never forget the fear and uncertainty I felt back then, wondering if I was going to have a business when it was all over. We made it through and from that moment on I realized I had to adapt my business structure and my revenue streams to withstand the next crisis. I just never imagined that it would be a pandemic that would have an even bigger impact on com- mercial real estate than the 2008 financial crisis. While the last crisis was all about credit and liquidity, the pandemic nearly wiped out the demand for commer- cial space because of work-from-home orders, shut- downs, quarantines, supply chain disruptions, unemploy- ment spikes, and a huge drop in consumer confidence. Thankfully, it looks like we are turning a corner, but commercial real estate is going to have a longer recovery than most other sectors because of the huge hit it took. How fast commercial real estate makes its comeback will depend largely on our capability to increase the speed and efficiency of virus testing and deploying the vaccines. Then we also have to see how people handle the continued need for social distancing. Finally, we will have to determine how the stimulus package will affect the situation.
Whatever happens, commercial real estate will look a lot different than it did before COVID-19. While various industries, markets, and property types will come back at different speeds, the satellite services surrounding commercial real estate like property management, archi- tecture, construction, and appraisal will become even more important as the industry adapts to the new reality. One sector of the industry that is going to have to majorly adapt is brokerage. I see the comeback happening in three stages, and the first one is happening right now. We’re already seeing increases in rent collection in industrial, office, retail, hospitality—and my favorite—multifamily. As anyone who knows me can guess, I’m particularly pleased about the bounce back in multifamily, which is registering rent collections at about 90 percent. The pandemic present- ed unique opportunities for me and my investors in the multifamily sector, with even more opportunities on the horizon. I’ve also got my eye on office space and indus - trial, which are both showing signs of promise since they can be more easily reconfigured to suit post-pandemic needs of business owners. The second stage of the recovery will happen over the next nine to twelve months but it’s going to be a slow pro-
14 : : COMMERC IAL REV I EW
cess as assets will most likely be reopened in phases and the possibility of additional spikes in COVID cases could disrupt that process. However, I am confident that multi - family will not only stabilize more quickly but strengthen as people will always need a place to live—just like they need food. The third stage of the recovery won’t come until much later in the distant future as we all adjust to a post-COVID world in which we are prepared for the next crisis, be it financial, viral or something else. As I have said in the past, the major urban markets like New York City, Los Angeles, Chicago, Philadelphia, Detroit, and Washington, D.C. will be hit harder. This is because employees who are allowed to work from home are fleeing densely populated cities for the suburbs where they can have more space. As many businesses are making working from home a permanent policy, I see a continuing demand for units in multifamily properties. They offer renters an affordable residence in a clean, modern, and well-maintained envi- ronment with premium-grade, onsite amenities in prox- imity to schools, supermarkets, and retail centers. Opportunistic investors like myself are already searching the market for distressed properties while the risk-averse will continue to play it safe and remain in a holding pattern. Right now, a lot of investors are limited to looking at prop- erties virtually but take it from me—real estate is a hands- on asset that needs to be seen up-close and personal. You have to see it in order to get a sense of the property’s potential along with whatever assets surround it. The current situation makes site visits, appraisals, transacting and closing a lot more complicated. This is why if you can’t go personally inspect a poten- tial acquisition, it’s crucial to partner with an investment firm who can not only monitor the market constantly but also jump on a property as soon as it becomes interesting. It won’t be anything close to business as usual until the lockdowns end, air travel resumes like before, and people feel comfortable about traveling and interacting in person. There’s no doubt that the real estate industry will be permanently transformed after the pandemic just like it was after the Savings & Loan collapse, the tech bust, 9/11 and the Great Recession. Thankfully, everyone agrees that the worst is behind us and the economy will be much stronger in about a year from now. By 2022, we will be stable and even thriving again. After all, new challenges bring new opportunities. Grant Cardone owns and operates seven privately held companies, and a $1.8B real estate portfolio as the Founder and CEO of private equity real estate firm, Cardone Capital. Cardone is also the founder and leader of The 10X Movement and The 10X Growth Conference, which is now the largest business and entrepreneur conference in the world. Moreover, Cardone founded the Grant Cardone Foundation, a non-profit organization dedicated to mentoring underprivileged and troubled youth in character and financial literacy.
10x living at grandview
Port Royale
Stella at Riverstone
COMMERC IAL REV I EW : : 15
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