After record 2018, investors still chasing industrial deals
Having bought into two of the largest industrial property portfolios sold in the Twin Cities in 2018, Minneapolis-based Capital Partners is planning to buy more this year, just in bite-sized pieces.
The investor scooped up about 2 million square feet of space this year, the majority of it in two transactions totaling about $109 million, said company partner Peter Mork. The company plans to close one more big industrial deal in March, a 1.9 million-square-foot portfolio of 18 Class B buildings that New York-based Clarion Partners is selling in the Minneapolis-St. Paul Midway, he said in an interview this week.
But after that, Capital Partners will likely spend the rest of the year bidding largely on single-building transactions.
“We’ll see less large-portfolio sales,” he said. “There was so much sold over the last five years. What I’m seeing are smaller, one-off opportunities.”
Industrial portfolios selling between $40 million and $70 million headlined 2018, which set a record for industrial sales volume. The final tally shows $1.02 billion in industrial sales in the Twin Cities, according to statistics compiled this week by the Minneapolis office of CBRE. That’s up from the previous record of $839 million in 2017 and from $730 million in 2016.
Investors are spending at record rates because the industrial market does not seem to be slowing, said CBRE Senior Vice President Judd Welliver. Industrial is the “preferred asset class” in the market, which has developers building and investors buying, he said in an interview,
“It’s just been robust activity with every offering we’ve had,” Welliver said.
Deals that got started in 2018 are carrying over into this year. Welliver said CBRE has up to 7 transactions that could close early this year.
Total sales this year aren’t likely to exceed 2018, said Dave Berglund, a senior vice president with the Minneapolis office of Colliers International. But there will still be big deals. Colliers is marketing Clarion’s Midway portfolio.
“There will still be a number of good-sized transactions in 2019,” he said in an interview.
The lure of industrial space comes in part from tenant demand. Tenants absorbed about 3.2 million square feet of space during the year, CBRE data shows. The year-end vacancy rate for the 335 million-square-foot Twin Cities industrial market CBRE tracks was 4.5 percent, down from 4.6 percent at the end of the first quarter of the year.
“We have more demand than supply,” Welliver said.
With that demand, developers are busy getting more new space built. About 3.1 million square feet of new space was under construction as of the end of the third quarter, and more projects are on the way.
Minnetonka-based industrial real estate developer Opus Group is doing a fair chunk of that work. Opus broke ground last month on a 204,000-square foot speculative industrial building on the northeast corner of Zachary Lane and 85th Avenue in Maple Grove, and completed early this month an 86,632-square-foot speculative industrial building in St. Paul’s Beacon Bluff Business Center.
The company is currently considering two more potential Twin Cities projects. The market still has “quite a runway,” said Opus Senior Director Phil Cattanach. New buildings carry a lot of appeal in the Twin Cities, he said, particularly for users and tenants that need large, contiguous spaces, high internal ceiling heights and well-lit interiors that can help attract and retain workers.
“The user requirements and space needs in the market today are driving a lot of businesses to consider new construction,” he said in an interview.
Opus is “bullish” on building industrial space, Cattanach said.
“Everything that is going up is getting absorbed,” he said.
And whatever goes on the market is likely to get sold, said Welliver and Mork. Institutional investors that “have to place money” are flocking to industrial real estate because other market segments — including apartments, office space and retail property — are nearly overbuilt or are seeing tenant demand erode, Mork said.
Industry research backs Mork’s opinion, Welliver said.
“Approximately 80 percent of the funds out there suggest that industrial is number-one acquisition criteria,” he said.
The $27.7 million sale of the 312,000-square-foot Red Rock Business Center at 10100 89th Ave. N., Maple Grove, on Oct. 16. Industrial Logistics Properties Trust was the buyer. United Properties was the seller.
The $20.425 million sale of the 335,400-square-foot Wilfred Distribution Center at 13201 Wilfred Lane N., Rogers, on June 29. WPT Real Estate Investment Trust was the buyer. Scannell Properties was the seller.
The $18.99 million sale of the 322,752-square-foot Boone Avenue Distribution Center at 7401 Boone Ave. in Brooklyn Park on Dec. 10. DRA Advisors was the buyer. Altus Properties was the seller.
The $17.9 million sale of the 242,000-square-foot Diamond Lake Industrial Center at 12999 Wilfred Lane, Rogers, on Dec. 27. Cabot Properties was the buyer. Meritex was the seller.
The $17.7 million sale of the 150,294-square-foot Vicksburg Business Center at 2800-2892 Vicksburg Lane N., Plymouth, on Aug. 15. Capital Partners was the buyer. Eagle Ridge Partners was the seller.
Minneapolis Industrial Tech Portfolio, $70.25 million, 12 buildings, 914,698 square feet of space. Eagle Ridge Partners and Artemis Real Estate were the buyers, closing March 29. Greenfield Partners was the seller.
Greenfield Industrial Portfolio, $58 million, nine buildings, 990,879 square feet of space. Capital Partners and Investcorp International were the buyers, closing on June 21. Greenfield Partners was the seller.
Tryperion Logistics Portfolio, $50.8 million, 11 buildings, 833,193 square feet of space. Capital Partners and Investcorp were the sellers, closing on Jan. 25. Tryperion Partners was the seller.
Minneapolis Corporate Industrial Tech Portfolio, $43.65 million, four buildings, 374,842 square feet of space. Artemis Real Estate Partners and Eagle Ridge Partners were the buyers, closing on Nov. 6. Greenfield Partners was the seller.
Minneapolis Urban Logistics Portfolio, $40.4 million, three buildings, 612,960 square feet of space. DRA Advisors was the buyer, closing on Dec. 13. Altus Properties was the seller.
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