Real Estate Roundup is a rundown of developments in the world of industrial real estate used for logistics and transportation. This week: Philly-area industrial park could be sold; Southern California real estate investor snaps up industrial sites
Given recent lease revenue and property sales figures, it’s understandable why owners of industrial real estate might think it’s a sellers’ market.
The caveat, as always in real estate, is location, location, location. For industrial real estate owners feeling out the market for potential buyers in the logistics and warehouse space, there are two critical factors. One, sites are much more valuable if they’re located in close proximity to highways, railroads and ports. Secondly, sites are at a premium if they’re situated near large metropolitan areas populated by consumers who increasingly make online purchases.
Two examples, on the East Coast and West Coast, show the market forces at work.
Philadelphia Freedom
In the Philadelphia area, an industrial park on the decline may soon provide a financial windfall to its owner, U.S. Steel.
The steelmaker once operated the Fairless Works mill on the site, located in Bucks County, Pennsylvania, across the Delaware River from Trenton, New Jersey. The company closed the mill in 2001 and portions of the site have become an industrial park.
Soil on the property tested positively for lead and iron, but an environmental cleanup is underway, with oversight from federal and state officials. That’s not expected to prevent a redevelopment of the site.
Local officials hope U.S. Steel finds a buyer, sources told the Philadelphia Inquirer.
“It’s nothing like what it could be if it were marketed and managed effectively,” Bob Harvie, a Bucks County Commissioner, told the Inquirer. “It’s the furthest-upriver deepwater port on the Delaware. It’s got fantastic railroad and highway access.”
The site could be prime territory for a massive distribution logistics facility dedicated to players in the e-commerce sector, including Amazon, Walmart and UPS, the sources said.
Harvie said he’s hopeful for a buyer, because the property has been poorly managed. U.S. Steel is under pressure to monetize the real estate as tax breaks are set to expire soon and the company is facing soft demand, the Inquirer reported.
Still, the industrial park, called the Keystone Industrial Port Complex, does have major tenants, including Kinder Morgan and Toll Brothers, the luxury home builder. Those tenants generate about $11 million in yearly rental income, minus expenses, for U.S. Steel. The property is assessed at about $6 million for property taxes.
U.S. Steel and its real estate brokers declined to comment to the Inquirer.
California Dreamin’
On the Pacific coast, the Los Angeles real estate investment trust Rexford Industrial Realty has been very active over the past several months. The REIT’s goal is to capitalize on the greater Los Angeles market’s size and scope.
In the last three months of 2019, Rexford snapped up 10 properties located in Southern California for a total of $258 million. The purchases increased Rexford’s portfolio by 5%, to a total of 213 properties.
The largest of those 10 deals was the $88 million acquisition of an industrial warehouse in Pomona, located in the Inland Empire of Southern California. The 752,000-square-foot building is leased to two tenants.
For all of 2019, Rexford bought a total of 40 industrial properties for $971 million.
Rexford plans to keep moving on its strategy of acquiring warehouses that fit its financial profile, top leaders said on Feb. 11.
Rexford will focus on “investing in and improving industrial property throughout infill Southern California’s highly sought-after industrial property markets,” co-CEOs Michael Frankel and Howard Schwimmer said in a news release.
As in the location mantra, Southern California offers an opportunity that’s virtually unmatched in the U.S. when it comes to logistics and distributors needing to supply consumers, Frankel said during a November conference call.
“As the nation’s largest zone of consumption comprising the largest first and last mile of distribution, infill Southern California is positioned to benefit from the growth in e-commerce and the demand for shorter delivery timeframes like no other U.S. industrial market,” Frankel said.