Joe Sitt Goes Back To The Future With Logistics, Life Science Plays
“Thirty-five years ago, I did my first industrial deal while I was still a student at NYU,” he reminisced in an interview with Bisnow. “It was pretty challenging doing both things, having to explain to the business counterparty sat opposite you, sorry, I have to leave now, I have to go to school.”
Sitt’s nascent property company, which would go on to become Thor Equities, bought 30 acres from a farmer in South Brunswick, New Jersey, built a 398K SF logistics facility on the site, and made a good return.
At Thor’s outset, the company was 95% industrial assets, but it moved out of the asset class over time because the sector, which was once the poor relation to its office, retail and apartment cousins, didn't deliver enough returns. Instead, Thor made its name and became a business with billions of dollars in assets under management in the U.S., Europe and Latin America in urban retail and offices.
Thor has been moving out of retail in the U.S. for a decade now, Sitt told Bisnow, but this summer it made a definitive pivot, launching two new businesses to invest in logistics and life science real estate in the U.S. and Europe. Thor Equities still has dozens of New York retail and office properties in its portfolio, most of which are centered on the high-priced areas of Fifth Avenue, Madison Avenue and SoHo.
Sitt explained the rationale for the new launches, why he doesn’t think Thor is late to the party in sectors that have seen rapid value growth in recent years, and why he remains optimistic in spite of political turmoil on both sides of the Atlantic.
In August, Thor launched ThorLogis, a dedicated logistics division that will invest $900M or more in logistics properties in the U.S., the UK and Europe.
The division will be run out of Europe by Thor’s new European managing director, David Hunt-Cuadrado, who previously worked at Logicor, the logistics platform built by Blackstone.
In Europe, it has bought a 400K SF warehouse near Amsterdam that will be leased by Dutch flower company Bakker. And it is reportedly in exclusive talks to buy a 2.2M SF portfolio of UK logistics assets from Segro for £220M ($276M).
In the U.S., Thor is taking a site it has owned in Red Hook, Brooklyn, that it had previously earmarked for office development and will instead build a 700K SF logistics facility there.
“In both the U.S. and Europe, we have an advantage because we come with tenants, having built up great relationships with the people taking logistics space today,” Sitt said, referring to traditional retailers building their e-commerce presence and tech companies that it has leased office space to needing increasing amounts of logistics space.
“Whenever we look at a big transaction we like to have a tenant in hand, or at least in mind, before we make the purchase," he said. "That is a big advantage, and helps us to reduce the risk and increase returns.”
Sitt said that he wasn't worried about being late to the party in logistics, where asset values have increased by almost a quarter since 2013, according to BNP Paribas Real Estate.
“Most of the focus in the early part of the industrial real estate cycle has been shooting with a shotgun, not with a rifle,” he said. “We are not betting on a specific market move, we are more betting on our ability to find off-road deals, move quickly and add value in specific situations.”
He added that the company always tries to “inculcate” itself in the market it operates and build up a deep knowledge quickly, particularly by undertaking asset management in house.
“Our track record shows that we have the ability to do that,” Sitt said.
The second business Sitt launched this summer is Thor Sciences, which will invest in life science assets, initially in the U.S., but in Europe, too, further down the line. It kicked off that new division with the $152M purchase of The Center of Excellence, a 784K SF campus in Bridgewater, New Jersey.
Bill Hunter, a new senior vice president at the company, will be leading the division. Hunter was previously the president of Novita Equities, a Philadelphia-based developer of university research facilities.
Sitt said that the division was in some ways an extension of the strategy of leasing offices to tech companies. But he also revealed that a personal investment in the biotech sector had helped catalyse the move.
“I’ve known [biotech venture capital investor] Peter Kash and he’s been a friend for 35 years, and through investing with him I got an education in the sector," Sittt said. "Through looking at it through his eyes and having this knowledge in the sector, that allowed us to add life sciences to our knowledge economy office division. And again, we will always look to arbitrage our investments by having tenants in hand for projects.”
Sitt said that when it comes to the retail sector, it will keep future investments mainly in Latin America, where there is still greater room for growth in luxury urban assets. In spite of this, he still said assets on the best streets in cities like London, New York, Paris and Milan would continue to fare well.
That is in spite of the fact that Thor is facing debt issues on retail properties it owns on some of those high-profile New York streets. Three loans secured against retail assets on Madison Avenue and Mercer Street totalling $84M have been moved into special servcing this year, and at the property at 1006 Madison Ave. the company faces foreclosure, The Real Deal reported.
Sitt declined to go into detail on those properties, but said Thor is working with lenders to ensure the best outcome at all the properties, and pointed to the small size of the loans in the context of Thor's overall portfolio.
On a general note, Sitt said that geopolitical turmoil like Brexit, or the U.S. trade war with China, were worrying, but not dissuading the company from investing.
“I’m a generally optimistic guy, but I am genuinely optimistic that agreements can be reached soon in these situations,” he said. “Plus, when others are running for the hills, it can be a great opportunity to put out capital.”