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Though the industrial market is still relatively robust, those working in the field see larger issues, such as community pushback and lack of support, as well as the effects of broader commercial real estate turmoil, as monsters at the door.
“Distress in office: That seems to be coming,” Dedeaux Director of Real Estate Investments Rishi Thakkar said. His concern is that capital will shift from industrial to pounce on that distress, resulting in a move away from industrial real estate.
“That does keep me up at night,” Thakkar said.
The CBMS delinquency rate rose slightly from December 2022 to January 2023, from 1.82% to 1.85%, according to a note from Fitch. The increase was boosted by new delinquencies on office and mixed-use property loans, “alongside a continuing high volume of retail delinquencies,” Fitch said.
Industrial delinquencies, by comparison, were at 0.44% in January, the same they had been the previous month, illustrating the fortitude of the asset class relative to its cohorts.
Realterm Associate Vice President TJ Cameron told the audience at Bisnow's Southern California Industrial and Logistics Conference at the Omni Hotel and Resort Los Angeles in Downtown Los Angeles he’s also watching global capital markets closely with an eye on how shifts could potentially come down on industrial real estate.
“If we start to see dislocation in other broader markets, debt or other other real estate products, that will suck capital out of real estate, especially industrial real estate, because it's one of the more liquid assets in real estate right now, so that’s definitely something to watch,” Cameron said.
Another concern is the general resistance to, or lack of support for, new industrial development, not only from community or environmental justice groups, but from cities themselves.
“I don’t know anymore if I’ve been entitled by-right or it’s not been entitled by-right,” Nikols Co. CEO Carrie Nikols said. The Nikols Co. manages the Nikols Mortgage Fund, a private money debt fund.
Nikols shared an experience in which she thought a land loan for an apartment building was approved, only to have the city call back months later to say that they were taking back their sign-off.
“The borrower fought with the city and finally got that taken care of, the city honored the letter they had issued, and then a NIMBY group came and filed suit” for the same issue that the city had disputed.
“The legislative environment is what keeps me up at night: moratoriums, these constant revisions and Not In My Backyard, ‘I want my package in one hour, please, but I don't want to ever see a truck,” Rexford Industrial Real Estate Chief Investment Officer Patrick Schlehuber said.
Concerns about pushback against industrial development, and even related land uses, like industrial outdoor storage, came up throughout the event.
Industrial real estate professionals need to figure out how to participate in the process of legislating and working with communities, Schlehuber said.
“Because otherwise, we're a silent party, and the loudest voice wins,” he said.
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