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Industrial Real Estate Roundup: Investors capitalize on COVID effects

Rather than drag down the industrial real estate space, real estate firms are trying to accelerate construction of new space and acquisition of existing properties.

(Photo: Jim Allen/FreightWaves)

Real Estate Roundup is a regular rundown of developments in the world of industrial real estate used for logistics and transportation. This week: Black Creek Group, Dream Industrial and Plymouth Industrial ramp up activity.

Certain industries have weathered the past eight months with barely an ounce of good news — hotels, retailers and higher education, to name just three.

But some sectors of the economy have fared well during the COVID-19 pandemic, and the current era could be described as undeniably positive.

Industrial real estate is one of those sectors.

Consider some recent comments made by corporations playing in the space of real estate devoted to warehousing, distribution, logistics, shipping containers and ports.

Black Creek Industrial REIT IV, an investment fund managed by Black Creek Group in Denver, described the situation succinctly in a recent document filed with federal regulators.

“While no property sector is immune to COVID, the industrial real estate sector in which we invest continues to outperform most property sectors,” the fund’s management said in a Nov. 13 document.

A quick glance at Black Creek’s portfolio offers proof to the pudding. This specific fund owns 126 properties nationwide, evenly distributed across the country but with large holdings in California, Dallas and the mid-Atlantic, as well. Most of its properties are warehouse distribution facilities.

Tenants include Amazon, XPO Logistics (NYSE: XPO), Kroger and office furniture supplier Steelcase.

Those holdings have generated a steady and reliable source of income during the pandemic, and the number of investors not interested in that success can probably be counted on one hand. Black Creek said that its 26 million-square-foot operating portfolio is 94.3% leased and its 30 million-square-foot operating portfolio reported a combined collection rate of 96.5% during October.

To be certain, COVID hasn’t been all good news for industrial real estate companies. Prologis Inc. (NYSE: PLD) said in late October that demand is outstripping supply due to the rapid shift toward online commerce. That’s likely to lead to a dearth of available warehouse space in early 2021.

On the other hand, that could be good news for industrial real estate developers and investors. Reduced supply means greater demand for those who own the limited amount of warehouse space available.

STAG Industrial Inc. in Boston said in a Nov. 5 news release that “the current economic environment is likely to curb new industrial supply in the near term and to accelerate a number of trends that positively impact industrial demand.”

As for developers with projects in the pipeline, it’s full steam ahead to meet the expected surge in demand early next year. Dream Industrial REIT, based in Toronto, is in the “advanced stages” of planning and permitting for a 460,000-square-foot warehouse in North Las Vegas, located on a 24.5-acre site, a project where it holds an 80% ownership stake. Construction is expected to begin next year.

Both leasing volume and rental rates have surpassed the expectations of Dream management, based on the economic conditions during the early weeks of the pandemic.

“We are achieving rental rates that are outperforming given our pre-endemic expectations,” Alexander Sannikov, chief operating officer, said during a Nov. 4 call with investors.

Industrial real estate investors are making acquisitions, too. Plymouth Industrial REIT (NYSE: PLYM), headquartered in Boston, on Tuesday closed on its $94 million acquisition of 2.1 million feet of industrial warehouse space in Akron and Canton, Ohio. The portfolio includes 10 buildings leased to tenants operating in transportation and logistics, health care, industrial manufacturing, and food and beverage. Stock market investors know the value of industrial real estate and have directed their money in that direction. Shares of the Pacer Financial Inc.’s Benchmark Industrial Real Estate SCTR exchange-traded fund had risen 6.1% through Monday. That compares to a 2.6% increase in the Dow Jones Industrial Average.

Andy Peters

Andy Peters is an Atlanta-based staff writer with American Banker, a news publication that covers the banking and financial services industry. He also maintains a freelance career and has written about industrial real estate and transportation issues.