Prolific office and apartment developer Related Fund Management is the latest CRE investor to bet big on the niche cold storage segment.
RealCold, an affiliate of the New York-based company, will spend $1B to develop a network of distribution facilities as demand for cold storage grows alongside a rise in online grocery shopping, The Wall Street Journal reported.
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The company will spend $150M on each of its first two locations in Lockhart, Texas, and Lakeland, Florida. Construction on the more than 300K SF warehouses is expected to begin before the end of this year, per the WSJ.
RealCold plans to have more than 10 facilities across six markets by the end of 2025. Its parent company, Related, owns and manages a portfolio of assets valued at more than $60B, according to its website.
Related isn’t the first CRE investor to foray into cold storage, though the hefty amount of capital required on the front end has thus far kept the segment specialized. Cold storage warehouses cost two to four times more per square foot to develop than regular warehouses, per the WSJ.
Bain Capital formed a joint venture last summer with Dallas-based developer Barber Partners to build as many as 15 cold storage warehouses valued at $500M.
In August, an institutional investor injected $500M into Envision for the company to acquire and develop more than $1.5B worth of cold storage assets.
Projections around the performance of cold storage have been closely tied to the rise of online shopping. E-commerce's share of total U.S. grocery sales was forecast to increase to 21.5% by 2025, up from 13% in 2021, per a mid-2022 report from CBRE.
That increase was expected to propel demand for cold storage, which at the time of CBRE’s report had a development pipeline totaling 3.3M SF.
But like most of CRE, inflation and higher interest rates, labor challenges and general economic uncertainty threatened to impede the sector’s growth.
Despite those headwinds, the potential for returns remains high compared to other asset types, mostly due to the low volume of new construction relative to existing inventory, a BentallGreenOak study found.
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