8C — May 25 - June 7, 2018 — Industrial / Distribution Centers — M id A tlantic

Real Estate Journal


I ndustrial R eal E state & D istribution C enters

By Owen Rouse, Jr., Manekin LLC New options, new rules for industrial


he strength of industrial as a favored an asset class is not in dispute.

cies need advanced logistics management software (invest- ment) and perhaps material handling equipment (major in- vestment). This suggest oc- cupier’s balance sheets can support this level of investment or that landlords are willing to amortize tenant-specific improvements. If the firm has not really been operating in this manner previously, growth may require some board buy-in as well as longer arc design and installation time. Generally, the move towards automation (and its spend-up) occurs as la- bor markets tighten to the point of either limited availability or

So what does this mean for investors, occupiers, and land- lords? Investors Competition to place capital into the industrial asset class has never been more com- petitive. Declining capitaliza- tions rates (even across credit classes) combined with newly formed capital source including offshore dollars has created a moving target. Combined with relatively small transactions it becomes increasingly difficult to “move the needle” in terms deployed capital. The quest for the “last mile” or “last touch” facility contin-

ues as buildings get amended to suite occupiers and the real estate models get worked out. This last touch concept may be the next big thing that can bring life to older but infill buildings. The good news for some in- vestors is that longer term leases may become the norm to absorb amortized capital or protect occupiers by fixing their rental costs over a longer period of time. This may allow inves- tors layer in favorable levels of debt, pushing overall yields upwards. Occupiers E-commerce driven occupan-

increasing hourly costs. Some logistically significant areas of the Unites States have already begun to display elements of labor fatigue. Additionally, a high level of material handling equipment mandates certain physical considerations/limitations: slab capacity, electric capacity, clear heights, steel truss capacity and loading logistics. Certain buildings, despite their location and pedigree may be ineligible for certain occupiers unless major modifications are made Not all occupiers are e-com- merce driven. E-commerce sales at 10-12% of total retail sales means that 88-90% of retail sales still occur in stores. The fall of Toys R Us is a les- son to what can happen from the confluence of the Amazon- effect and internal debt / bal- ance sheet mismanagement. Look for the retail stores to be repurposed and the warehouse component swapped out for other occupiers. The recycling of assets continues. Landlords The path to creating the most physically competitive property at the current price point is dif- ficult but is an exercise which must be done. Increasingly, the sophisticated occupiers have polished their logistics models and melded them to an ideal physical plant; the closer you get to the ideal, the better shot you have at landing the user of the future under a long term lease. Landlords are now faced with the following questions: • Do you have the right clear height or can you raise your roof to remove obsolescence? • Do you know the costs of reinforcing bar joists so that tenants can hang material handling equipment? • Does it make economic sense to remove a bay in order to create a 100% drive-around facility that will appeal to the logistics demands of a larger group of potential tenants? • What is the proper door-to- flor ratio and can you add docks to get it? • How much on site trailer storage is enough? While not everyone will ride the e-commerce wave but as the industry continue to advance, new utilizations for old build- ings will display and modern logistical models will drive growth. Owen J. Rouse, Jr. is di- rector of capital markets for Manekin LLC . 

Institution- ally backed capital is try- ing to deploy across the in- dustrial spec- trum as capi- tal tries to en- ter the field or double down

Owen Rouse, Jr.

on their existing investments. Public to private mergers are coming across the screen more frequently as are large scale private transactions driven by “industrial aggregators”.

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