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Philly's industrial scene is bouncing back from the depths of the Great Recession. And everybody on our Philadelphia Real Estate panel last week was smiling. Well, except one: Liberty Propertry's Jim Mazzarelli says he's a little concerned about the future.
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Jim (right, with Riley Riper Hollin & Colagreco partner Ed Hollin, an event sponsor) told the crowd of 150 at the Rittenhouse Hotel that he sees two economies (which normally would require an eye test, but Jim knows better than we do): multinational companies and manufacturers that are experiencing record profits and strong sales, which is feeding the newest industrial boom. And then there's the service sector, which “is getting crushed” (hence high unemployment). “At some point in time, the people who should be being hired but are not are going to stop consumming. When those lines cross, I start to worry,” he says, noting long-term concern.
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Still, improving conditions have many on our panel bullish on industrial, and they're out buying product. Exeter principal Henry Steinberg says his company is deploying capital for its second fund and is buying warehouses “at historically favorable prices per pound.” And with increasing imports and population growth, the long-term factors are in place, he says. Now is an excellent time to invest.
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Prologis first VP Mark Levy tells everyone that companies are using the bottomed market to optimize and consolidate their logistic networks. Companies improving efficiency have led to a dozen or so built-to-suit opportunities seeking 700k SF or more. On the investment side, Mark says Prologis is only looking at regional distribution hubs with strong population growth as part of a new “discipline” to investing. “There not only has to be value enhancement… there also has to be value protection. You don't want to see the market turn on a dime and your value erode based on a frothy market condition,” he says.
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Pureland's Charlie Walters says we probably won't see much new development of smaller warehouses and manufacturing facilities that cater to tenants that use less than 10k SF, who are "the backbone of America.” Charlie says the capital barrier to entry for developers is “so astronomical” at the moment, and small tenants don't meet the requirements to gain financing of new projects. Still First Industrial's Jeff Thomas though is seeing lending easing with LTVs back up to 65% from 60%. “It's coming back, but slowly.”