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Prologis Denying Most Rent Relief, Halting Spec Development

The country's largest industrial real estate developer said this week it has paused speculative development but anticipates tailwinds for the sector later on.

Prologis' Pulaski Distribution Center outside of New York.

In the company's earnings call Tuesday, Prologis executives outlined steps the San Francisco-based REIT is taking with its nearly 1B SF portfolio in response to rampant economic shutdowns. Among them is stopping new spec development, though it is proceeding with build-to-suit projects, all of which are on track, Prologis Chief Customer Officer Mike Curless said.

"The 30 build-to-suits are well underway," Curless said. "We haven't heard anything from any customers to say differently."

As other CRE sectors have floundered, many industrial properties have enjoyed surges in e-commerce and cold storage needs. Industrial REIT share prices as a whole were down less than 5% year-to-date as of Tuesday, and shares of Prologis itself are virtually unchanged over the same period following a March plunge. 

Like owners in other sectors, Prologis is seeing requests for rent relief. It has received relief requests representing 4.3% of gross annual rent, with 70% of those requests denied, 23% still under review and 7% granted through rent deferral loans, the company said. 

Deferrerals granted add up to $18M — $9M of which is for April — and are all structured for repayment this year, Prologis Chief Financial Officer Thomas Olinger said. 

The company's decision to halt new spec development and its experience fielding rent relief requests are in line with other big industrial owners, according to JLL Managing Director Greg Matter, who works with industrial tenants in Northern California.

“Halting speculative development is something we’ve seen others do as well,” Matter said. “[Rent relief] is a consistent request. I think in May and June we’ll potentially see even more requests.”

The REIT is also leasing out at a pace comparable with last year, it said. In the last 30 days, Prologis has signed 198 leases for 17.5M SF.

Curless said tailwinds for Prologis' 4,660-plus properties might come from speculative development slowing down, while Prologis Chief Investment Officer Eugene Reilly pointed to progress toward a vaccine as something to watch. 

“I think we will get a significant increase in occupancy the quarter or the quarter after the vaccine is likely available, maybe even when it's announced and it's definite that it's coming, based on the anticipation of it coming,” Reilly said.