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Real Estate Roundup: Industrial real estate grabs attention of big-time investors

Sam Zell, Blackstone, Goldman Sachs among major investors that recently have placed big bets on industrial real estate

Investment funds have been circling Kansas City Southern like hawks, according to Andy Peters. (Photo: Jim Allen/FreightWaves)

Real Estate Roundup is a periodic rundown of developments in the world of industrial real estate used for logistics and transportation. This week: Investors, hungry for higher returns, circle like hawks over industrial real estate.

It’s no secret that industrial real estate has thrived during the pandemic. Supply chain management, warehousing and distribution are viewed as vital to the economy now and in the future.

E-commerce sales, after all, are expected to increase 18% this year to $710 billion, according to real estate firm JLL. Online sales don’t work without a robust industrial real estate infrastructure serving as the foundation.

For those who still have doubts, a quick look at which investors are bullish on industrial real estate might dispel those concerns. These are investors who are attracted to a sector that’s produced the highest return of any commercial real estate sector, according to Millionacres, a service of Motley Fool.

The Chicago billionaire investor Sam Zell this month filed plans for an IPO to raise $300 million to make acquisitions in the North American industrial real estate space.

Zell built his fortune in the 1990s as the founder of several real estate firms bearing the Equity name, each focused on a different sector — residential, multifamily and office. Zell is also no stranger to freight, having participated in 2018 in a $200 million investment in RailUSA, which has been an active buyer in the short-line railroad space.

Speaking of railroads, investment funds have been circling the rail company Kansas City Southern like hawks, eager to grab an asset seen as able to generate profits over the long term.

With more than 6,700 miles of track in its portfolio, Kansas City Southern is a play on the importance of freight rail as a critical component in the development of Industrial real estate. So far this year, Kansas City Southern has rejected two offers from private equity titan Blackstone and the investment fund and Global Infrastructure Partners.

Blackstone has plenty of other irons in the industrial fire, though. The New York firm acquired more than $25 billion in industrial real estate in 2019 — before COVID-19 — including warehouses and logistics facilities. Only Prologis, the world’s leading logistics real estate investment trust, owns more industrial real estate.

Blackstone’s rivals aren’t far behind. Wall Street bank Goldman Sachs placed a direct bet on industrial real estate this year when its merchant banking division and a partner acquired 6.3 million square feet of last-mile industrial warehouses. The real estate, located in Houston, Phoenix, Orlando, Florida, and growth markets, hosts the likes of Amazon, Frito-Lay, Sherwin-Williams and more.

Tech titans in China want more exposure to industrial real estate, too. Business-to-business commerce purveyor Alibaba doubled its stake in Chinese courier YTO Express in a $1 billion transaction. Earlier in 2020, Alibaba took a 20% stake in another Chinese courier, Yunda.

Alibaba’s rivals aren’t far behind. in August bought a $432 million majority stake in Kuayue Express.

Industrial real estate has grabbed the attention of public-sector pension funds too, a group that’s responsible for trillions of dollars under management.

Total assets under management at the Alaska Permanent Fund (which isn’t technically a sovereign wealth fund but resembles those based on its oil-based foundation) grew to $4.7 billion in mid-August, up from $4.1 billion at the end of June, due to purchases of industrial and multifamily real estate REITs, according to Reuters.

The blistering pace of activity shouldn’t slow anytime soon. Look no further than the fight against COVID-19 to see the urgency that leaders will place on industrial real estate in the immediate future. In the quest to distribute hundreds of millions of vaccines worldwide, possibly later this year or early in 2021, drug companies and distributors are expected to lean heavily on the existing supply-chain infrastructure to get the job done.

Consider this prediction from the International Air Transport Association: To deliver a COVID-19 vaccine to 8 billion people, the job will require more than 8,000 Boeing 747 all-cargo jets.

No wonder investors want a bigger piece of industrial real estate.

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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.