02/13/2013

USAA Is Latest to List Big Industrial Portfolio

USAA Real Estate is marketing a 4.9 million-square-foot portfolio of warehouses that could trade for $325 million amid growing investor interest in the industrial sector.

The eight bulk-distribution centers, in seven markets across the country, are fully leased to 10 tenants for an average of 6.7 years. At the estimated value of $67/sf, a buyer’s initial annual yield would be roughly 6%. CBRE is handling the listing for San Antonio-based USAA. Investors may bid on all or part of the package, but four of the properties must be purchased together because a buyer has to assume cross-collateralized loans.

The offering comes at a time when industrial sales are soaring, prompting sellers to bring out big portfolios — including a similar-sized offering by First Potomac Realty. Bids could reach $300 million for that 4.3 million-sf package, which the Bethesda, Md., REIT began shopping this month. That would translate into a 7.5% capitalization rate. The bulk warehouses and light-industrial properties, all in Mid-Atlantic states, are 81.2% leased to 61 tenants, making them suitable for value-add investors. Eastdil Secured is marketing the properties for First Potomac, which is exiting the sector and will accept offers only for the entire portfolio.

Last year saw sales of warehouses worth at least $25 million rise to $11.8 billion, the second-highest total ever — and nearly half the activity was in the fourth quarter.

USAA’s portfolio features the type of warehouses that have seen the strongest demand: large, recently built, fully leased and predominantly single-tenant. Marketing materials pitch the advantage of buying them as a package. They note that the average transaction size for similar buildings is $30 million and, at that rate, assembling such a package would require 10 purchases. The properties are in Northeastern Pennsylvania, Southern New Jersey, Central California, California’s Inland Empire and areas surrounding St. Louis, Kansas City and Houston.

While big portfolios have been trading in recent years, they often have been going at discounts to the prices they would get if broken up — and the more the properties vary in age, quality and geography, the more that holds true. But because of increasing demand, with many buyers feeling under-allocated in the sector, some industrial pros expect to see “portfolio premiums” return this year, at least for core properties in solid markets. The premiums were common during the boom years, when investors seeking economies of scale were willing to pay extra for big packages.

That could work in USAA’s favor. The distribution centers in its offering were all built between 2001 and 2008 and have modern features that include cross-dock or tri-load configurations for more efficient loading; early-suppression-fast-response sprinkler systems; minimum ceiling heights of 30-39 feet; and ample room for parking and trailer storage. Forty-one percent of the space is leased to investment-grade tenants, including Clorox, Home Depot, Kimberly-Clark and Walgreens.

The properties that must be purchased together because of the cross-collateralized loans are:

The 1 million-sf property at 400 First Avenue in Gouldsboro, Pa., occupied by Sears.

The 575,000-sf Redlands Commerce Center, at 2300 West San Bernardino Avenue in Redlands., Calif., leased to Clorox.

The 447,000-sf Kimberly-Clark Regional Distribution Center, at 27200 West 157th Street in New Century, Kan.

The 386,000-sf warehouse at 1130 Commerce Boulevard in Logan Township, N.J., leased to McKesson Medical-Surgical, Rehrig Penn Logistics and Walgreens.

The other properties are:

The 658,000-sf Home Depot Rapid Deployment Center at 1400 Pescadero Avenue in Tracy, Calif.

The 635,000-sf warehouse at 2500 North Plaza Drive in Visalia, Calif., leased to Jo-Ann Stores.

The 598,000-sf Interport Building 1 at 13001 Bay Area Boulevard in Houston, leased to Palmer Distribution Services.

The 540,000-sf Lakeview Commerce Center at 3965 Lakeview Corporate Drive in Edwardsville, Ill., leased to World Wide Technology.

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