industrial market
state of the
in the united states
– Midwest Commercial Real Estate Hall of Fame – Kansas City Art Institute – Executive Council and Board of Trustees – Kansas City Design Center – Board of Advisors – ULI Kansas City District Council – Executive Committee – Licensed real estate salesperson in the states of Missouri and Kansas – Registered Architect
Professional Affiliations
Infill vehicle maintenance and IOS facility, Las Vegas, NV, 72,850 SF on 8.02 acres Urban infill IOS facility, Kansas City, MO, 18,000 SF on 3.3 acres Last Mile Industrial (lease) for national credit tenant, Lenexa, KS 15,587 SF
Partial List of Recent Transactions
t 816-268-4218 gstark@nzimmer.com
Director Global Corporate Services
Graham Stark
Areas of Focus
YEARS OF EXPERIENCE
4
Investment Underwriting Aquisition & Disposition
Industrial Outdoor Storage (IOS) Strategic Infill and Logistics–oriented industrial assets
Landlord & Tenant Representation Site Selection
Owner-Users, Developers, and Investors
Current Projects
Portland, OR Aurora, CO San Antonio, TX De Soto, KS Savannah, GA Las Vegas, NV
About
Newmark Zimmer, a full-service commercial real estate company, provides a range of services including sales and leasing, property and facilities management, global corporate services, investment sales and capital markets, owner’s representative services for public and private development projects, and public sector consulting, as well as various real estate consulting services.
HOW WE STACK UP
OUR SERVICES
30M
SF DEVELOPED
Newmark Zimmer provides an integrated platform that offers clients a single source for all their real estate needs, with an emphasis on anticipating the future.
SALES & LEASING
DEVELOPMENT MANAGEMENT
PUBLIC SECTOR CONSULTING
GLOBAL CORPORATE SERVICES
PROPERTY & FACILITIES MANAGMENT
INVESTMENT SALES & CAPITAL MARKETS
Our Services
75+
YEARS IN BUSINESS
KC
HEADQUARTERED
100
ASSOCIATES IN KC
50
STATES WITH ACTIVITY
6,000+
land acres sold in the past 10 Years
230+
Land transactions in the past 10 years
500+
LOCAL TRANSACTIONS PER YEAR
Other Firms
28% Market share of kc land sales in past 5 years
27.72%
44.87%
13.12%
11.01%
3.28%
Agenda
current industrial statistics trends
Nearshoring of manufacturing freight headwinds capital markets construction ecommerce
ios statistics
Q1 2023 Industrial statistics
Total Inventory: 16,612,246,061 square feet Under Construction: 664,493,448 square feet Q1 2023 Net Absorption: 64,308,177 square feet Q1 2023 Vacancy Rate: 4.2% Rent Growth: 2022 saw industrial rent growth at a record pace, 21.1% YoY
We anticipate this to moderate the next two quarters as demand slows and new product delivery increases. However, looking farther out many industrial projects won’t get off the ground, and we anticipate an effect of this will be that rent growth will rise and vacancy will fall starting towards the end of this year and into 2024.
Up 40 basis points from the previous quarter. This is expected to rise at least for the next two quarters as the economy slows and new deliveries add to the supply
Trends
nearshoring
Mexico is in the initial stages of a large reshoring of manufacturing. Canadian Pacific Merger with Kansas City Southern.
freight headwinds
Trucking/Freight activity remains a pain-point (potential crisis)
Outbound Tender Rejection Index (OTRI) is at an all-time low. High rejection means that trucking firms have more discretion on loads they take, and carriers want a high rejection rate. Low rejection rate equates to fewer loads needing pick up, and carriers taking almost any load regardless of price and/or destination
Drivers face lower earnings with high debt on their vehicles: From Craig Fuller of Freightwaves: “During COVID peak cycle, solo trucking operators were earning $4 a mile ($3.20 net of fuel). At 2,000 miles a week, that is $350k to $400k per year without a formal education. Low barriers to entry to get in. No tenure requirement. So they bought trucks for $150,000. Now they earn $1.56 a mile net of fuel and the interest rates on their vehicle loans have doubled. They weren’t prepared for a downside scenario.”
Freight shipments are back down to pre-Covid levels:
Capital Markets
We estimate that 50%-80% of total planned industrial developments this year will not be able to get off the ground due to financing issues
Very few lenders have an appetite for non-recourse debt, and those that do want 10% of the loan value escrowed in addition to your down payment. This is making larger deals very difficult to finance.
Current Trends from Capital Providers:
Life Co.'s:
Deal Size Threshold: $5mm+ General Terms: •5-year fixed rate at 60-65% LTV •Prepayment ability after 18-24 months •Underwriting to a 1.25 DSCR, which is normally less than 70% LTV –Willing to go higher than that for a national credit tenant to a 1.05 DSCR. Asset Focus: Multi-tenant industrial is extremely desirable. Life Co. money is disproportionately being committed to industrial and multifamily assets. “They are not touching office assets.” If single-tenant asset, they will want loan maturity in step with lease maturity. Debt Structure: 36 months interest only (IO) for multi-tenant. No IO for single tenant. Spread: 140-150 basis points (bps) over corresponding treasury. The high is currently 220 bps over the corresponding rate. The average is 185-190 bps over the corresponding rate.
Bridge/Debt Fund:
Deal Size Threshold: Agnostic General Terms: •70-75% LTV •Preference for higher leverage deals •A higher fixed rate makes much more sense than a floating rate Debt Structure: 7.5%+ rate. 30 year amortization (AM), 3 month IO. Bridge debt typically is settling in the 8%-9% range. Interest Rate Cap: Available with floating rate, but caps are incredibly expensive at the moment. It’s not uncommon for interest rate caps to cost hundreds of thousands of dollars. Interest rate caps are typically in place for 36-48 months.
Local/Regional Banks:
Deal Size Threshold: $1mm - $20mm. General Summary: •Regional banks have effectively disappeared, despite the fact most will say “they are open for business.” •Value-add investments are almost a non-starter for local/regional banks. –They will only lend on value-add if the borrower is a repeat customer. Even then, there’s a high likelihood the borrower won’t be able to get financing. •Regional banks are as fragmented as they have been in at least a decade in terms of lending terms. There is more pain on the horizon. Debt Structure: Say a Prayer. These lenders are re-trading term sheets with no consequences.
CMBS:
Deal Size Threshold: $5mm+ General Terms: LTV is 40% with corporate guaranty Debt Structure: 7%+ Spread: 250-300 bps over benchmark General Summary: •Beholden to the market and the headwinds don’t make a ton of sense for CMBS groups to pursue deals. •What makes sense for CMBS? –Abnormal industrial portfolio, but the overall tenant credit profile is solid. –CMBS will do full term IO for 65% or less debt. Can get 10 years fixed at 7% for full term IO. For context, a Life Co. is around 5.75% for 3 years at best. –Cash out refi’s are fairly easy with CMBS
Construction
Cost: $100 - $200 per foot based on building size, type, market, etc. Overlooked Issue: office buildouts in new Class A industrial buildings are $200+ per foot Overlooked Issue: Power capacity remains an issue, especially for manufacturers Construction Timeline: 9-12 months once the first shovel is in the dirt Product Type: Developers are focusing on smaller buildings that cater to tenant demand Fewer buildings being completed that are 500,000+ square feet Majority of developer focus is completing buildings 250,000 square feet or less Tenant requirement of 40,000 – 250,000 square feet is the current sweet spot Buildings that accommodate these users are able to realize the most rent growth currently Most common tenant types: 3PL’s and bulk commodity suppliers
ecommerce
state of ios
Headwinds:
IOS is not an unknown sub-asset anymore; Buyer competition is at an all-time high A large gap remains between buyers and sellers on pricing expectations Smaller pool of national credit tenants in relation to new build Class A Industrial
Tailwinds:
Similar to the headwinds, this is not a niche sub-asset anymore; The buyer pool is robust. New product is essentially non-existent; it’s not an overbuilt asset class Local governments are hesitant to give developers any incentives for new outdoor storage developments since these sites often do not create new jobs
Rent Growth Nearshoring of manufacturing in Mexico will boost IOS demand across the Midwest, South, and Southeast Current economic environment presents a favorable buying opportunity
t 913-669-3408 gstark@nzimmer.com
