James E. Hanson II, President and CEO of The Hampshire Companies
PROVIDENCE, RI—A joint venture of Morristown, NJ-based Hampshire Companies and Harrison Street of Chicago will be developing institutional quality self-storage facilities along the I-95 corridor in markets in the Southeast and Northeast sections of the US.
The firms say the new self-storage facilities will be developed from Boston to Washington, DC. Hampshire and Harrison Street also announced that the joint venture’s first self-storage property will be the ground-up development of a seven-story self-storage facility along Interstate 95 in Providence, R.I. The project is expected to break ground in the first quarter of 2019. The two firms pointed to Providence’s high population density, superior accessibility and lack of institutional quality facilities as key reasons why they jointly decided to develop the self-storage property there.
The Hampshire Companies and Harrison Street say they plan to announce several additional self-storage development projects in the coming months in the aforementioned Boston to Washington, DC corridor.
“Although the eastern United States presents tremendous opportunity for self-storage development, it is among the most crowded and competitive in the United States, which makes it difficult for new investors to enter the market,” says James E. Hanson II, president and CEO of The Hampshire Companies. “Our strategic programmatic partnership with Harrison Street provides us with a unique opportunity to successfully deploy capital into an increasingly competitive marketplace. It also enables our team to build upon our track record of success and pursue additional self-storage development opportunities over the next several years.”
Christopher Merrill, co-Founder and CEO of Harrison Street, adds, “We are pleased to partner with Hampshire, a best-in-class storage developer, as we identify attractive investment opportunities in a region with favorable demographics and high barriers to entry. Hampshire’s proven track record makes them a valuable partner for our team, and I am excited to leverage our deep sector expertise and resources that will benefit our investors and partners.”
The two firms touted their respective expertise in the self-storage arena as factors in forming the joint venture. The Hampshire Companies has been one of the nation’s premier self-storage developers. Hampshire has repositioned or developed 33 self-storage facilities with an aggregate value of more than $440 million since 2012. Presently, Hampshire has 12 self-storage development projects underway involving a total of $217 million of investment across the eastern United States and is targeting another 12 additional projects with an aggregate value of more than $215 million in the pipeline.
Harrison Street, which has $18 billion in assets under management, has invested $2 billion across 223- storage properties and has sold 137 self-storage properties for a gross transaction value of $1.0 billion since its inception in 2005.
Portland State University joined Majestic Realty and Commerce Construction for the Tualatin tilt-up.
PORTLAND, OR—With a flurry of activity in the form of industrial and retail development projects last year, privately held industrial developer Majestic Realty Co. continues to expand its footprint in the Portland region. These include speculative developments, build-to-suit opportunities, lease ups and new land acquisitions.
“We’re incredibly proud of the success and growth we’ve been able to achieve throughout the Portland metro area since 2014 when we acquired what is now the Majestic Brookwood Business Park,” said Phillip Brown, executive vice president of acquisitions and development for Majestic Realty Co. “As we continue our growth in this region, we’re even more focused on the responsible and visionary development of each of our projects and we’re working to ensure that we serve both the short- and long-term needs of our tenants and the entire community.”
Last year, Majestic Realty completed a 207,053-square-foot build-to-suit sortation facility for UPS. Originally planned as a two-building spec project, UPS approached Majestic Realty during the design phase to request that Majestic build the entire site. Some 18 months later, Majestic Realty entitled and built the UPS sorting facility scheduled to open in second quarter 2019. This build-to-suit was the largest delivery of the fourth quarter at 266,160 square feet.
“Portland is a locals market with numerous barriers to entry, so knowing the key players is essential,” Brown tells GlobeSt.com. “Also, the urban growth ring around the city means there is limited land and the entitlement/permitting procedure requires a knowledge of the process.”
With walls fully tilted in December 2018, the company’s latest project, Majestic Tualatin Business Center, a 226,960-square-foot logistics facility, is on target for early second quarter completion. Located at 21409 SW 115th Ave. in the high-demand Interstate 5 Corridor South submarket, the building will offer 32-foot clear height, 39 dock-high loading doors, a large truck courtyard with 38 trailer parking stalls, 128 car parking stalls with room for expansion, ESFR sprinkler system and ample office space. The property is divisible to approximately 55,000 square feet.
“Majestic Tualatin Business Center is the largest speculative industrial building to be built in the submarket in many years and is being met with a tremendous amount of interest and activity. With a lack of inventory of available space over 100,000 square feet and strong demand in the submarket, we’re expecting a short lease-up period,” said Steven Klein, senior vice president and managing partner of Kidder Mathews who, along with his partner, Peter Stalick, Kidder Mathews senior vice president, is marketing the project with Majestic Realty.
In addition, Majestic Realty Co. has acquired a 45.6-acre parcel directly adjacent to its now fully developed Majestic Brookwood Business Park. Located at the southwest corner of Brookwood Parkway and Huffman Street, Majestic Brookwood Business Park II is a planned three-building site that offers build-to-suit or ground lease opportunities for users starting at 162,000 square feet, up to 795,000 square feet. The high-identity corridor location offers access to the Sunset Highway (26) via Brookwood Parkway, 32-foot to 36-foot ceiling clearance, cross-dock loading and an extensive on-site fiber optics network.
Rounding out the development of its Majestic Brookwood Business Park, the company began construction on Lot 2, a 6.28-acre retail center featuring a Hyatt House, Starbucks and 7/11. With some small additional opportunities available, Lot 2 represents the last component of the Majestic Brookwood Business Park which was acquired in 2014 and is home to TopGolf, DB Schenker, Rosendin Electric, Amazon and Flexential (formerly ViaWest) with Hyatt House, 7-11 and restaurants under development. Finally, Majestic completed construction this year on its Majestic Alberta Commons, a 25,000-square-foot retail center in Portland featuring anchor Natural Grocers.
“Basically, everyone was developing on the east side of the airport so we took development to the west side near the high-tech industrial users. This product type wasn’t previously there but was needed. We go where the recipe works,” Marc Burns, Majestic senior vice president, tells GlobeSt.com. “We understand development and rent costs, and quickly realized Hillsboro had a recipe that works and we carved a niche in the marketplace. We took a risk there but all properties are preleased.”
Majestic Realty Co. has developed approximately 100 million square feet of industrial properties and master-planned business parks. In 2017, Majestic Realty Co. expanded its longstanding commitment to the Pacific Northwest region with the opening of an office in Hillsboro, OR.
During the course of 2018, 3.9 million square feet of new inventory was delivered to the Portland industrial market with 500,000 square feet in the fourth quarter alone, according to a quarterly report from Cushman & Wakefield. This compares to the 2017 total delivery figure of 2.7 million square feet. Total leasing activity for all of 2018 was just under 6 million square feet, equivalent to the 2017 figure.
“The educated population and tech are huge catalysts,” Michael Perkins, Majestic real estate analyst, tells GlobeSt.com. “Portland has a tech focus with its data centers, and proximity to Intel and Genentech. Intel, specifically, continues to grow with a 1 million-square-foot expansion.”
The Orange County market has the highest industrial rents in the Southern California market. According to research from NAI Capital, Orange County industrial rents are $0.88, slightly higher than the rents in Los Angeles. Although Orange County has higher rents, Los Angeles is seeing the most rent growth. The same report shows that Los Angeles rents grew 7.3% last year, while Orange County industrial rents are up 6%.
“Over the last four or five years, the industrial asking rates have been higher in Orange County,” Chris Jackson, executive managing director at NAI Capital, tells GlobeSt.com. “There has been a lot more tech-type companies moving into the market and using industrial-flex space with more office requirements. There are also smaller industrial sizes in Orange County, compared to Los Angeles. Smaller units translates to a higher cost per square foot.”
Ecommerce and warehouse users have been a major driver of demand and, in turn, rent growth throughout Southern California, but entertainment studios and aerospace users have also played an integral role in the market growth. “Those three industries have helped to drive up rates,” says Jackson. “That is especially true in L.A. County, which was behind in rates, even as sales prices continue to rise. Over the last four-to-five years, the rates have jumped because of those companies.”
Industrial rents have grown significantly this cycle throughout the Southern California market. The Inland Empire has been the biggest beneficiary of the industrial demand. In 2018 alone, rents in the submarket increased 21.1%. In Southern California overall, industrial rents were up 11.8% in 2018, and in the first month of 2019, rents have continued to climb. “We were predicting that rents would level out this year, but in the first part of the year, we have seen substantial activity,” says Jackson. “Big box industrial, especially north or Los Angeles has been very active. We have seen sale activity hit an all-time high, and interest rates went up. Leasing activity started to slow in the fourth quarter, so we thought companies were looking to consolidate. We thought rates would level out as a result. If that does happen now, it won’t be until the third or fourth quarter of the year.”
Jackson expects the first half of the year to remain strong, based on the leasing activity in January. “There are a lot of fulfillment users that are looking to grow the distribution in the L.A. area, and I think that will happen in the first half of the year,” he says. “There is about 400,000 square feet of activity in the San Fernando Valley that is getting signed right now, and rents have continued to push higher. I think that they will continue to grow through the first half of the year.”
130-150 East St. Charles Road, Carol Stream, IL
CAROL STREAM, IL—In its first acquisition of 2019, Clear Height Properties has acquired a two-building property located at 130-150 East St. Charles Road in Carol Stream, IL. According to Real Capital Analytics, a proprietary commercial real estate research database, 150 East St. Charles Road was transferred to JPMorgan from Colony Realty Partners through a foreclosure in August 2018.
The two buildings at 130-150 East St. Charles Road are comprised of a total of 64,285 square feet of space. Combined, the buildings are approximately 22 percent leased; available spaces ranging from 2,500 to 14,756 square feet.
Building 130 features 28,442 square feet of space, one exterior dock and two drive-in doors; Building 150 offers 35,843 square feet, two exterior docks and three drive-in doors. The buildings, which sit on 3.82 acres, were built in 1987 and renovated in 2005. The combined property has 157 surface parking spaces.
“This property is well-located in the prime Carol Stream/DuPage County industrial market and represents a prime value add investment opportunity for Clear Height,” says Gary Rose, managing director, asset management and acquisitions, Clear Height Properties. “We’ll invest in some minor capital improvements to the property and aggressively market the space to small to mid-size users in DuPage County that are looking for a central location with easy access to I-290.”
Clear Height says Kelly Disser and Michael Freita of NAI Hiffman will serve as the leasing agents for 130-150 East St. Charles Road.
Investors Bank Commercial Real Estate Lending Group recently provided $32.3 million in financing that was used to acquire the 235,600-square-foot luxury multifamily property in Fairview, New Jersey. The building houses 146 residential units.
SHORT HILLS, NJ—Short Hills, NJ-based Investors Bank says its commercial real estate lending volume exceeded $2.48 billion in 2018. The loans were used to refinance existing commercial mortgages, acquire properties and construct new buildings.
The financing was provided to different CRE sectors including multifamily housing properties, commercial office buildings, industrial warehouses, shopping centers and cooperative apartments. Properties financed are located in New York, New Jersey and Pennsylvania.
During the closing weeks of last year, Investors Bank’s CRE Lending Group originated 19 large CRE financing transactions valued at $385 million.
“The significant increase in the number of CRE loans during the fourth quarter is linked to our continued focus on diversifying our portfolio,” says Joseph Orefice, head of Investors Bank’s CRE Lending. “We use our significant assets, loan processing capacity and financing expertise to meet each client’s specific needs. Our objective was to finish the year in a strong position, which we achieved.”
The largest single CRE loan, which was completed at the end of 2018, was a $42 million transaction to refinance the commercial mortgages on 27 retail properties in multiple locations.
“We are very optimistic about our ability to originate CRE loans this year,” says Orefice. “Yes, challenges lie ahead in terms of the intense competition in our market, potential macroeconomic concerns, and interest rates increases. To balance those forces, we rely on the support of the bank’s senior managers, our reputation as a reliable CRE lender and our strong relationships with leading commercial property owners.”
Among the larger loans that were completed by the bank in New Jersey:
- $32.3 million loan to acquire a 236,600 square-foot multifamily housing property with 146 residential units in Fairview
- $16.1 million loan to acquire a 171,200 square-foot office building in New Providence
- $15 million loan to refinance a 128,700 square-foot office building in Englewood Cliffs
- $11 million loan to refinance a 240,000 square-foot multifamily housing property in East Windsor that has 220 residential units, and
- $10.8 million loan to refinance a 90,000 square-foot multifamily housing property in Morristown, which has 76 residential units and 45 parking spaces.
Don’t count this cycle out yet. The recent fiscal and monetary stimulus package may have given new tailwinds to the slow-and-steady growth trajectory that has marked this cycle, according to experts last week at the Burnham-Moores Center for Real Estate’s Breakfast at the BMC Lecture Series at the University of San Diego. Mitch Roschelle, partner and business development leader at PwC, was the featured speaker at the event.
“When you compare this expansion in the U.S. to previous ones, for most of the cycle, we’ve seen slower economic output and job growth on a relative basis,” Roschelle tells GlobeSt.com. “This has picked up somewhat due to the combination of both monetary and fiscal stimulus. The benefit of which has created—for now— tailwinds in our economy outweigh the headwinds, suggesting the expansion has more legs to it.”
Norm Miller, PhD and Hahn Chair of real estate finance at the University of San Diego School of Business, who is affiliated with the Burnham-Moores Center for Real Estate, agrees that we could be in for a extended economic cycle. “A longer economic cycle is possible today because of better regulations and monitoring of the economy, at least when they are working,” Miller tells GlobeSt.com. “We also get information much faster today and that allows businesses to pull back when they see an excess of some type, be it too much vacancy in a certain type of property, or too much inventory coming online.” Information and data collection is possible through both public and private sources, like CoStar, REIS, Moodys, RCA and so on, according to Miller. This data plays an integral role in better addressing supply-demand dynamics that can prevent overbuilding and enhance stability.
In terms of predicting the end of the cycle, Miller says that a lack of exuberance—the typical run-up period to a recession—could mean a longer cycle and a milder downturn. “We can expect less over building in 2019 in local markets than in prior cycles, but this does means astute investors need better analytical skills than before as you can’t count on huge dips in prices every several years,” he says. “The next price dip may be mild, but it may not happen until late 2020 or 2021 and it will require jumping in faster than before.”
Stock market volatility may also increase real estate allocations in the year ahead, as they have in past cycles. “When people get scared as they did of the techs in 1998, the dot.com bubble days, money flows to lower risk investments like real estate and this means higher allocations of capital to real estate and that drives yields down,” adds Miller. “This may slightly offset higher interest rates and compress cap rates even more, but I think our memories will be short and the allocations to real estate will be stable.”
Attendees at the Breakfast at the BMC Lecture Series were also optimistic about the year ahead. According to Roschelle, 80% of the survey respondents believe that the prospects for profitability for the real estate industry are good-to-excellent for the year ahead. That data was based on a survey conducted in the fall 2018. Miller says that survey reflects general market sentiment as well. “Most people understand from the jobs reports that we are doing well now, and we have been doing well for many months,” he says. Additionally, the GDP growth line has been a straight line for the last 10 years. For me, the big fear is trade wars and other countries that no longer want to own our debt.”
In 2019, both Roschelle and Miller agree that there are big opportunities in the multifamily and industrial sectors. Miller gets more specific, listing data centers and short-distance regional warehouse space that serves the ecommerce market as the best opportunities in industrial, while co-living communities that can offer quality amenities at market rents are the best opportunities in multifamily. Geographically, he is most bullish on regional investment in higher cap-rate markets, including Pittsburgh, Columbus, Cincinnati and Indianapolis. “Good airports also help which bodes well for cities like Charlotte,” he says. “The glamour markets like NYC, San Francisco and Seattle are simply too expensive right now, but the large investors still like to place big bets in these markets, and of course, these investors will receive single digit returns, lower than the market overall.”
The Burnham-Moores Center for Real Estate’s Breakfast at the BMC Lecture Series at the University of San Diego was a sold out event with more than 280 attendees.