Jun 16, 2020

Warehouses Serve as a Pandemic Haven for Property Investors

Wall Street Journal (June 16, 2020) - Demand for industrial space remains high as consumers stay home and order goods online.

The coronavirus pandemic has thrown property markets into turmoil, but investors keep buying up warehouses.

Real-estate investor BentallGreenOak paid $164 million this month for a warehouse in Franklin Township, N.J., one of the largest single-asset industrial property sales of the year.

Large investors who buy property, who are collectively sitting on billions of dollars of cash, have shown little appetite for offices, apartments and retail space since the pandemic began, as they wait for prices to fall. But brokers and investors say demand for warehouses is still high because e-commerce, which depends on industrial real estate, hasn’t been as affected by the pandemic.

Crow Holdings Industrial, which is based in Dallas, started building the 925,000-square-foot New Jersey property in partnership with private-equity firm Carlyle Group Inc. last year and completed it in late winter, before the state called a halt to construction work due to the pandemic.

“We were sweating at the end,” said Clark Machemer, Crow’s senior managing director for the Northeast region. The property is leased to LG Electronics USA, which moved in about two months ago.

Investors spent tens of billions of dollars on industrial real estate close to big cities in recent years, betting that a continued shift to e-commerce would push up rents at these properties. Blackstone Group Inc., for example, owns about 850 million square feet of warehouse space and last year paid $18.7 billion to buy industrial real estate from Singapore-based GLP.

Industrial real-estate prices increased by more than a third over the past three years but were down 4% in the three months leading up to May 28, according to Green Street Advisors.

The pandemic has led to a surge in online orders as more people stay at home. Some online retailers have struggled to keep up with the demand, leading to delays and potentially to more demand for warehouses where goods can be stored and processed.

While warehouses fared better than other property types, they were still affected by the pandemic. Industrial production, bricks-and-mortar retail sales and international shipping are all down, according to Green Street, hitting properties that depend on these industries.

“Without e-commerce, industrial would be crushed,” said Eric Frankel, a senior analyst at Green Street. The market is faring better than it did in 2008 and 2009, he said, and while rent growth is likely to slow, he doesn’t expect a big drop in warehouse prices.

In April, $2.4 billion of industrial properties were sold—the lowest figure for that month since 2011, according to Real Capital Analytics. But prices haven’t taken the kind of dip seen with hotels and retail. Mr. Machemer said he started talking to BentallGreenOak before the pandemic and ended up reducing the price slightly, although he said the change was minimal. BentallGreenOak declined to comment.

Brokers say more deals are happening as the U.S. economy gradually reopens. “If you’re in hotels or if you’re in retail, you’re not feeling like the world is the same,” said Gary Gabriel, a vice chairman at Cushman & Wakefield PLC who brokered the deal. But industrial real estate, he said, “looks a lot like it did before.”

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This overview is designed to introduce Crow Holdings and its various operating companies. Crow Holdings Capital is a U.S. SEC registered investment adviser and is the manager to the Crow Holdings Capital Funds. Crow Holdings Partners, L.L.C. is a U.S. SEC registered investment adviser and is the manager of the Crow Holdings Industrial Build-to-Hold Fund. Crow Holdings Capital, Crow Holdings Partners, Trammell Crow Residential, Crow Holdings Industrial and Crow Holdings Office are operated separately and independently from one another with separate senior leadership and investment committees. SEC registration does not imply a certain level of skill or training.