Industrial Real Estate Takes Center Stage

Three Institutional Funds Paying $1.5 Billion for 30.4 Mil. SF of Space ( M. Heschmeyer,Co-Star)

Industrial property deals took center stage this week as not one but three powerhouse private investors — Blackstone Group, DRA Advisors and AEW Capital — locked down deals for large industrial portfolios valued at a total of $1.5 billion. The combined volume of their portfolio deals amounts to more than one-third of the entire dollar volume of industrial sales done year-to-date.

The deals appear to be occuring at an opportune time in the property segment.

“Overall, the U.S. warehouse market has been healing steadily, with vacancy rates receding from 10% at year-end 2010 to 9.2% at the end of 2011,” said Hans Nordby, director of advisory services for CoStar Group. “Given our forecast for continued GDP growth (almost perfectly correlated with warehouse demand growth) and essentially zero supply underway, 2012 should be a solid recovery year for big concrete sheds.”

The recovery is not evenly distributed among all industrial types, but is favoring new and larger properties, the segment of the market that the institutional funds are buying.”Bigger assets cater more to global trade and retail sales, both bright spots of the recovery since 2009,” PPR’s Nordby added. “Also, corporate profits are high and rents are low right now, so many tenants are inclined to trade up to newer space. On the other hand, smaller assets are often driven by the housing market – Joe the Plumber needs small bay space and definitely doesn’t need 32-ft. clear heights – and the local manufacturing environment.”

The Blackstone deal at $770 million is about twice the size of each DRA Advisors and AEW.

Blackstone Group’s Blackstone Real Estate Partners VII agreed to buy 65 industrial properties totaling 16.6 million square feet from Dexus Property Group of Sydney, Australia. The price comes to about $46/square foot with an average property size of about 250,000 square feet.

The properties are scattered across secondary markets located for the most part in central and southeastern United States:

State, Total SqFt
OHIO, 4,338,000
TEXAS, 3,525,000
FLORIDA, 1,894,000
GEORGIA, 1,626,000
ARIZONA, 1,586,000
MARYLAND, 1,420,000
MINNESOTA, 945,000
VIRGINIA, 595,000

“This sale is consistent with Dexus’ current strategy to exit non-core U.S. markets,” said Dexus CEO Darren Steinberg. The single-line transaction was made possible by the leasing success of our U.S. team, who increased the occupancy in the U.S. central portfolio by 12.8% in the six month period after Dexus assumed leasing management in June 2011.”

Following this transaction Dexus’ U.S. portfolio will be concentrated in core West Coast markets.

Blackstone Group has been on an opportunistic tear since 2009 when the Great Recession started subsiding. It has pulled down more than $19 billion in portfolio buys.

    • Date, Portfolio, Contents, Price ($mil)
    • Oct-09, Busch’s Entertainment, 10 entertainment parks, $2,700
    • Mar-10, Stayton SW Assisted Living, 149 senior housing centers, $1,300
    • Aug-10, Sunwest Communities, 144 senior care centers, $1,200
    • Oct-10, ProLogis, 180 industrial properties, $1,020
    • Mar-11, Centro Properties Group, 588 shopping centers, $9,400
    • Sep-11, Equity One, 36 shopping centers, $473
    • Nov-11, Glenborough Realty Trust, 16 office buildings, $800
    • Jan-12, Elbit Imaging, 47 shopping centers, $1,430
  • Apr-12, Dexus, 65 industrial properties, $770

As of year-end 2011, its real estate segment had $42.9 billion of assets under management, or 26% of Blackstone Group’s total assets under management.

Blackstone’s BREP VII is a $10 billion opportunistic real estate fund targeting a broad range of real estate and real estate-related investments, focused primarily on the U.S. and Canada.

In the second largest deal, Weingarten Realty Investors, a Houston-based REIT, agreed to sell its entire industrial portfolio to DRA Advisors LLC. The portfolio is comprised of 52 industrial properties, aggregating 9.6 million square feet in Florida, Georgia, Tennessee, Texas and Virginia.

The portfolio is predominately unencumbered, with DRA assuming one secured loan of $4.9 million. The sale price is $382.4 million, representing a capitalization rate of 8% and a price per square foot of $40 with an average property size of about 185,000 square feet.

“The sale of this portfolio demonstrates our commitment to the company’s capital recycling initiative,” said Drew Alexander, president and CEO of Weingarten. “It is a significant step toward the strategic exit from industrial real estate, further strengthening our position as a pure-play retail REIT.”

The company retains an interest in two joint venture relationships, which at the company’s pro rata share, aggregates approximately 1.4 million square feet of industrial real estate.

Weingarten will use the proceeds from this transaction to pay down debt. Closing of the transaction is expected to occur within the next two months.

In the third deal, South Florida-based Flagler sold its Flagler Station industrial portfolio to AEW Capital Management LP in Boston.

Flagler Station business park contains 33 industrial assets with 4.2 million square feet of space. The properties were acquired by AEW’s AEW Core Property Trust (U. S.), the firm’s open-end core real estate fund, for $340 million or $81/square foot with an average property size of 127,000 square feet.

“Given the performance of Miami’s industrial market over the last 12 months, we were certain that a Class-A portfolio with such critical mass would garner serious interest from institutional investors,” said Vincent Signorello, president of Flagler.

“AEW has a long history of investing in Southeast Florida and this latest acquisition illustrates our belief in the strength of the Miami/Medley market, which services the Port of Miami, Miami International Airport and Port Everglades,” said Dan Bradley, senior portfolio manager for the AEW Core Property Trust. “Moreover, it is an added benefit that Flagler will stay on to manage and lease these properties and help grow the value of these assets.”

Flagler will continue to manage and lease the portfolio on AEW’s behalf. They will also retain ownership of approximately 150 acres of undeveloped land within and adjacent to Flagler Station for the future development of roughly 2.4 million square feet.

Earlier this year, AEW sold a portfolio of 15 industrial properties to entities associated with Verde Realty. In total the portfolio of properties in California, Utah, Texas, Wisconsin and Maryland sold for $290.3 million or for an equivalent $70 per square foot. The portfolio was 97.6% occupied at time of sale.

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