THE DEAL WITH INDUSTRIAL

Industrial ease-up is strong and the B'more/DC region has one of the strongest consumer bases and the feds to shore up demand. The biggest problem is a lack of land. (Remember the good ol' days when you could get land by showing up first and planting a flag?)
250 heard the heartening news at Bisnow's second annual Baltimore Industrial Summit yesterday at the Four Seasons.
Prologis' Mark Levy says build-to-suits are back in Pennsylvania's I-81 corridor (and California's Inland Empire). In B'more's bread-and-butter 30k SF-ish market, though, small space users still feel pessimistic and are kicking the can. Larger companies, on the other hand, are upgrading to Class-A space, but that hasn't translated to higher rents. Instead, owners are stabilizing their properties and then taking advantage of capital that wants to acquire best-in-class assets. He adds that Class-B vacancy is even holding down Class-A rents. There may be a flight to quality, he says, but not at any cost.
Liberty Property Trust's Lisa Sullivan (our panel's Jersey girl-to- Baltimore transplant, here with Tri-Star Development's Sean Denny and Bill Holland) says she's actively looking for Class-A, well-located properties with 24' to 28' clear heights and truck courts (and perhaps give ample height for pole vaulting practice). That last quality is hard to find among the Class-B heavy inventory in Baltimore. The question, she says, is whether tenants will lease Class-B if she and other developers can't find land to build Class-A.
Duke Realty's Peter Scholz (right, with Stifel Nicolaus' John Guinee) says each local submarket has experienced a flurry of deals but then clammed back up. His firm's portfolio is 98% leased in Indy and going spec in the Inland Empire and considering it in Dallas. As for Baltimore, Peter says spec almost works on paper, but the variable is that spotty demand.
First Industrial Trust's Jeff Thomas says it's too hard to build the brand-new stuff that would inspire leasing since land costs two to three times as much as in nearby markets. He's here with Blue & Obrecht's David Paulson, Colliers' David Dannenfelser, Blue & Obrecht's Paul Obrecht, and NAI KLNB's David Fritz.
All these folks (except our moderator, Miles & Stockbridge's Sandy Howard) are looking for Class-A properties and land. And they're not alone. Mark says established industrial investors have new competition from private REITs, new funds, and companies like Brookfield Asset Management (entering the sector with its two-month-old JV with Hillwood). Still, Duke plans to up industrial to 60% of its portfolio by the end of 2013. It helps that those properties require less capital than, say, office.
NorthMarq's Bill Libercci (with Sandy and PNC Real Estate's Ronald Huffman) tells us NorthMarq sponsored the Maryland contingent's pool bar party at the Wynn in Vegas last week for ICSC. (Now you know who to thank.) He says historically low rates are allowing his company to lock in interest rates below 4% for 10- year, non-recourse loans for multifamily, office, and retail clients.

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