8B — May 25 - June 7, 2012 — Industrial / Distribution Centers — Mid Atlantic Real Estate Journal www.marejournal.com I NDUSTRIAL R EAL E STATE & D ISTRIBUTION C ENTERS By Michael Nachamkin, HFF We are seeing positive net absorption in most all major markets along with modest job growth
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ndustrial Real Estate as an asset class is in particularly high
there a lack of core prod- uct available to investors? Institutional owners have significantly increased their allocations for industrial, which is the next favorite behind multifamily. Selling core properties today is a real challenge for institu- tional investors as they have no place to redeploy the capi- tal although those who do decide to sell will outperform expectations! Sales volume continues to accelerate. In 2005, 2006 and 2007, there was sig- nificant investments activity from $22B in 2004 to $45B
in 2006, $50B in 2006 and peaking at $58B in 2007. Since the bottom of the re- cession, we have seen steady and significant increases in volume from $10.8B in 2009 to $27B in 2011 working its way back. There was more than $5.7B of industrial sales in Q12012 according to Real Capital Analytics. With this increase in capital flows, comes cap rate compression as investors bid up properties in the key logistic markets. Where is the capital coming from? US Pension Funds, Endowments and Private High Net Worth Clients are all trying to get into this safe and predictable asset class and Foreign Funds are chas- ing industrial as well. Some of the significant buyers to- day are Blackstone, Exeter, and DRA; all taking down some of the largest portfo- lios in the country that have some of their assets in the Northeast. There are few if any bulk industrial portfolios in the NY-Washington area being marketed so many of the trades are still one off. Cap rate spreads for Class A distribution in core mar- kets average 6-6.5% and 6.75%-7.75% for Class B. With this is mind, the best core assets are being priced sub 6% in the top tier mar- kets. For the leveraged play- ers, debt capital is readily available for the right spon- sor. Leverage of 65-70% is common with spreads rang- ing between 150bp and 250 bp over 10 year treasuries. Debt through conduit pro- grams is available in second- ary markets with spreads of 300-350bp. The I-95 Corridor, which extends fromNewYork down to Washington, D.C. is an area of focus for most institu- tional and private investors. There was $450-$500MM of industrial transactions pri- marily in Baltimore/Wash- ington, D.C., the Philadel- phia area and Northern New Jersey. Michael Nachamkin is a managing director at HFF and heads up the in- dustrial investment sales group in the Northeast. He is part of a national in- dustrial team with cover- age in the major markets of Miami, Dallas, Hous- ton, Chicago, Seattle and Los Angeles. ■
“There i s a surplus o f capi tal pur suing industrial properties with 70% of the capital targeting stabilized core product. Since core product is not available, we believe capital will migrate up the risk curve in both core and secondary markets. Why is there a lack of core product available to investors?”
d e m a n d because of the positive fundamen- tals driving t h e b u s i - ness in top tier indus- t r ial mar- kets around the United States.
no new construction however there is a pipeline of spec construction in key logistic markets such as Inland Em- pire, Central/Eastern PAand Houston. Several speculative projects are in the works in Central and Northern NJ, a major US Port market.
There is a surplus of capi- tal pursuing industrial prop- erties with 70% of the capital targeting stabilized core product. Since core product is not available, we believe capital will migrate up the risk curve in both core and secondary markets. Why is
Michael Nachamkin
We are seeing positive net absorption in most all major markets along with modest job growth. There is virtually
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