Industrial Sales Hit New Plateau
Submitted December 8, 2011, 11:10 AM
Bay Area industrial property sales are gathering steam, with a flurry of acquisitions since mid-year—and all indications are that the pace will continue or even accelerate, presuming sellers step to the plate.
Bay Area brokers say properties on all sides of the bay, including Silicon Valley, areas near the San Francisco International Airport and in East Bay markets such as Hayward and Newark, are attracting buyers. Interest is coming from both investors and users. Brokers say the biggest impediment to greater sales velocity is willing sellers.
Leslie cites two South San Francisco deals closed in the last 60 days, including 405 Victory Ave., a 210,000 square-foot property that had been owned by Boston-based TA Associates Realty. It was sold to a Swedish pension fund for approximately $25 million, or about $119 a foot. At the time of sale, the property had 10 tenants and was 90 percent leased.
The second sale was 1333-1361 Lowrie Ave., a 157,000 square-foot distribution building also leased to 10 tenants. The seller was San Francisco-based KSW Properties. The buyer was a Bay Area investment group, which also paid in the neighborhood of $21 million.
“The Lowrie asset was brought to market due to the dissolution of a 40-year partnership that allowed one of the partners to sell,” Leslie said.
James Morris, a Grubb & Ellis Co. vice president who specializes in industrial properties, attributed the increased activity to users' recovery from the recession's downdraft and investors' belief that the market is at its bottom. "REO activity and a still-sluggish economy are keeping prices flat," Morris said in an email message. "Also, rents have not begun to rise yet, either."
In the third quarter, San Francisco-based Prologis Inc. bought 2650 Bayshore Blvd. in Daly City—a 248,000 square-foot empty building that the public real estate investment trust paid $21.5 million to acquire in an all-cash deal. It had been owned by San Francisco-based D.R. Stephens & Co. and was a mail distribution center for the U.S. Postal Service, which moved out in May 2010. Another trade was the sale of the 87,000 square-foot 155 South Hill Drive in Brisbane, which was bought for around $8.4 million by Denver-based Industrial Income Trust Inc.
In a deal that closed Oct. 11, Irvine-based LBA Realty LLC bought 2425 Whipple Road in Hayward, according to Grubb & Ellis Co. research. The 215,000 square-foot asset was bought for $21.4 million, or $100 a square foot. WP Investments was the seller. The cap rate was 9 percent.
This summer, Bay Area-based Orchard Partners bought two fully leased East Bay warehouses, completing its seventh industrial acquisition with Morgan Stanley Real Estate Investing. The not-quite 325,000 square-foot Huntwood Logistics Center in Hayward is leased to Mohawk Industries through 2013. Mohawk is one of the world’s largest floor-covering manufacturers and distributors. The price was in the neighborhood of $70 a square foot.
Orchard also acquired a nearly 200,000 square-foot warehouse in Union City on behalf of its separate account client, The James Campbell Co., a large Hawaiian real estate company. The price was about $65 a square foot.
Shortly thereafter, Orchard announced its acquisition of the SFO Logistics Center with New York’s Angelo Gordon & Co. and Chicago’s Centrum Properties. The not-quite 572,000 square-foot warehouse and distribution property is on San Mateo Avenue in South San Francisco, less than a mile from the airport.
More recently, United Logistics Solutions Inc. bought the 155,000 square-foot Cherry Technology Center at 38083 Cherry St. in Newark. ULS is part of the Apex Group, a collection of companies that provide international supply-chain services. ULS bought another Newark property in late 2010 with not quite 144,000 square feet, which the company outgrew.
Meanwhile, a New Jersey public pension fund has committed $200 million to an investment group that has targeted San Francisco Bay Area industrial properties for the first time.
The board for the New Jersey Division of Investment, which had assets valued at an estimated $66 billion at the end of the third quarter, was expected to vote Dec. 8 to allocate the equity to the Exeter Core Industrial Venture. The $400 million-plus investment fund is managed by Plymouth Meeting, Pa.,-based Exeter Property Group.
Exeter wants to buy core warehouse and distribution properties in the San Francisco and Oakland markets as well as nine others nationwide including Los Angeles, Chicago, Dallas and Atlanta. Exeter has not invested in the Bay Area before, according to its Web site.
“There is a great deal of capital that is looking to find properties to buy. The capital was allocated for investment a few years ago, but has had a hard time finding product,” Leslie said.
“We would expect the trend to continue next year," Grubb’s Morris said. "This is a slow recovery and market conditions will remain the same for much of next year. The good news is buyers are back. We just need more inventory to sell."
