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February 01, 2017  

"Last Mile' Warehouse Portfolio Up for Grabs

High Street Realty is marketing a portfolio of relatively small warehouses in urban areas that it says are well positioned to benefit from retailers’ increasing desire to speed up deliveries to their customers.

The 55 multi-tenant buildings could fetch $420 million. The 6 million-square-foot portfolio is 96% leased. More than one-third of the space is in the Atlanta area, and nearly a quarter is in the Chicago market.

At the estimated value of $70/sf, the buyer’s initial annual yield would be 5.8%. High Street, a Boston investment manager, is pitching the properties as a package via CBRE, but would consider bids on smaller chunks.

In addition to Atlanta (2.3 million sf) and Chicago (1.4 million sf), the portfolio has buildings in and around Houston (1 million sf), Dallas (612,000 sf), Harrisburg, Pa., (564,000 sf) and Orlando (126,000 sf).

The 90 tenants have a weighted average remaining lease term of 4.3 years. The rent roll includes Cintas, Coca-Cola, Consolidated Container, Johnson Controls, Staples and United Technologies. No tenant leases more than 6% of the space.

Leasing demand is on the rise for “last mile” warehouses: relatively small distribution properties near population centers that can enable speedy — even same-day — delivery. Most of the listed warehouses encompass less than 150,000 sf. All are less than two miles from major highways.

E-commerce sales have grown 15% annually on average since 2010, fueling industrial demand. For example, on Sept. 30, year-over-year rents were up 7.5% on warehouses, compared to 3.9% for offices and 3.2% for retail space, according to marketing materials.

The marketing campaign is also emphasizing that three-quarters of the space is in the handful of markets where e-commerce leader has launched same-day delivery.

Because land is scarce and restrictions on development are tight, the potential for construction in such areas is limited. Only 21% of the total industrial space under construction in the U.S. involves properties of less than 250,000 sf.

Investors have been told the portfolio’s net operating income is projected to rise 35% over the next decade, based on the assumption that strong leasing demand will fuel rent growth.

The portfolio encompasses:

20 Atlanta-area warehouses, nearly all (2 million sf) in Austell, Ga. Occupancy rate: 96%. Weighted average remaining lease term: 4.8 years.

17 Chicago-area warehouses, spread across 11 towns. Occupancy: 93%. Remaining term: 4.2 years.

Seven warehouses in Houston’s Southeast submarket. Occupancy: 100%. Remaining term: five years.

Six warehouses in the Dallas area — three (totaling 180,000 sf) in Allen, Texas, two (totaling 302,000 sf) in Grand Prairie, Texas, and a 131,000-sf warehouse in Dallas. Occupancy: 95%. Remaining term: 2.8 years.

Three warehouses in the Harrisburg area — two (totaling 378,000 sf) in Mechanicsburg, Pa., and a 186,000-sf building in Middletown, Pa. Occupancy: 100%. Remaining term: 3.1 years.

Two warehouses in Orlando. Occupancy: 64%. Remaining term: 3.5 years