Industrial Vacancies Are Low And Dropping

July 28, 2017by debbieheinze


Bixby’s industrial investment focus is centered on assets such as one in West Sacramento, which are leased, well-located buildings in primary and strong secondary markets in the West, Severson says in this EXCLUSIVE.

2959 Thomas Pl. is a 138,455-square-foot industrial building recently purchased by Bixby.

SACRAMENTO—West Sacramento has emerged as a premier industrial submarket in the region, near the Interstate 5 and 80 interchange, the Sacramento River deep water shipping channel, downtown Sacramento and the Sacramento International Airport. Capitalizing on a positive risk/return profile, Bixby Land Company recently added to its industrial portfolio with the $12.4 million all-cash purchase of 2959 Thomas Pl., a newly built 138,455-square-foot industrial building.

Bixby was self-represented in its purchase from developer Ridge Capital Investors, represented by Bo Mills at JLL. The building was fully leased at the time of sale to two tenants, Core-Mark and Worm’s Way. The project is located in Southport Business Park, a master-planned industrial park also occupied by Safeway, General Electric, HD Supply, Nippon Shokken and Old Dominion Freight Lines. Building improvements include a 30-foot clear height, ample dock-high and grade-level loading capabilities, skylights and installed LED lighting, and an energy-efficient roofing system.

“Our industrial investment focus is centered on assets similar to this project, where we can acquire leased, well-located buildings in primary and strong secondary markets in the West,” said Mike Severson, executive vice president and chief acquisitions officer of Bixby Land Company. “This is a good proxy for the industrial investments we are committed to making in the $10 million to $25 million range.”

The property is designed to meet modern supply chain distribution needs and represents the institutional investment quality of industrial assets Bixby continues to acquire in Western US markets. Severson recently discussed Bixby’s investment criteria, strategy and timing in this exclusive. Bixby is increasing its core industrial investment activity. Why and why now?

Severson: We will be expanding by 2 to 3 million square feet during the next two to three years. We are seeking steady, long-term yields from core industrial, good portfolio allocation. Industrial is about the best product type within the four core product types particularly on the West Coast due to its importance in today’s e-commerce supply chain. We are buying properties in markets with a sub-5% vacancy with a number of them under 3%. Rents are rising at rate of 10% annually in most of these markets. So we think it’s a great time to get in. Generally, supply is not keeping up with demand in most markets, in fact, vacancies are low and dropping. We see this stuff being in short supply, very hard to get ahold of, but certainly providing a great risk/return profile. Does the recent West Sacramento purchase define the prototypical investment Bixby looks to make? How does Bixby achieve higher core industrial yields?

Severson:  The brand-new, fully leased building fits well into our investment criteria, at a 5.8 cap rate, which is about 150 basis points higher than what you would find in the infill primary markets. We are getting this type of quality building with two five-year tenants at a yield that is about 30% higher than primary infill markets. We like that type of play in secondary markets. Yields in secondary markets are generally higher, where basis points are 150 to 200 higher than primary infill markets, which is historically higher than it has ever been. How is Bixby winning deals? Are you willing to trade building age for yield?

Severson:  Our target is from San Diego to Seattle, including Phoenix and Las Vegas. In buying the Sacramento building in the $10 to $25 million range, we are lessening the competition from institutional investors. Bixby’s strategy is to aggregate a portfolio of those size deals to reach $300 million and obtain a portfolio premium upon exit. We are pretty particular about the quality of the buildings we buy. In order to increase yield, Bixby considers taking vacancy risk in primary markets where they don’t believe the risk is very high, given the low vacancy rates in those markets. In what other ways are you growing your industrial portfolio?

Severson: The company has a portfolio of approximately 5 million square feet, 4.89 million to be exact. We have an experienced acquisitions team with 30 years of deep market knowledge. Our acquisitions will be a mix of primary and secondary markets.

The 120-year-old Bixby Land Company has a portfolio of industrial, office and R&D properties of approximately $1 billion, all in select Western US markets. Bixby recently hired Matt Ela as vice president of acquisitions to bolster its investment capacity.

Join Southern California’s top owners, developers, investors, brokers and financiers as they discuss the topics that move the needle at the upcoming RealShare on August 24 at the Westin South Coast Plaza in Costa Mesa, CA.

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