An Interview With: Mark Levy
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We here at Bisnow bring you so much about others aspects of commercial real estate, we got to thinking we may have slighted industrial. So herewith a little dose on the subject from someone who knows:
ProLogis, based in Denver, is the world's largest global industrial REIT, big enough to be a component of the S&P 500. In the Washington-Baltimore region, run by VP Mark Levy, the company owns or manages 6.5 million square feet, out of a global portfolio of 400 million feet. Levy, originally from Philadelphia, came to ProLogis in January from Ft. Lauderdale where he ran the South Florida market for Duke Realty, before which he had spent almost ten years building Opus’ South Florida office, industrial, multifamily, and retail operations.
What areas here are seeing the greatest demand for industrial space?
We’re seeing very strong demand both in the Dulles corridor and Manassas. The Port of Norfolk is really growing, and therefore so are future prospects for an inland port in Front Royal, where a lot of goods arrive by rail. Overall, this leads to more demand for industrial space in Loudoun, Winchester, and Prince William.
You have a project near Dulles?
It’s called Dulles Gateway, about a mile south of the airport. We just completed three buildings totaling 226,000 square feet, and are about to break ground on two more buildings for an additional 170,000 feet. In late 2007, we plan still another four buildings.
What are they?
Light distribution buildings, what we call “dock-high,” meaning you can back a 53-foot truck up, match heights exactly, and unload cargo.
Who uses your buildings?
We have sold our first building, 64,000 feet, to Federal Bakers. We typically develop and hold, or acquire and hold. But this has been a long-term customer and it fit their business model, so we agreed. We’ve built the other two buildings on spec but have pretty significant pre-leasing interest, especially emanating from government subcontractors who need proximity to both the airport and highway infrastructure. But we’ve also leased part of a building to Amazon.com to distribute their products to the Metro area. In other parts of the region, we have a long laundry list of users, from Sears to the Washington Post for their newspaper distribution, to freight forwarding companies.
Is this region typical for you?
Actually, we do more light industrial buildings here, on average about 100,000 feet, typically about 20% office finish and the balance a warehouse. We also do bulk industrial buildings, or mega-distribution centers for processing inventory for regional distribution, but not as many as we do elsewhere.
Are you the leader here in industrial?
We’re one of the top two to three in the Baltimore-Washington area, but number one overall in the country, and in certain submarkets here such as the Dulles area.
Where else are you active here besides Dulles?
Along the 95 corridor between Baltimore and Washington, in Prince George’s County, Landover, Capital Heights, and north of Baltimore. And in Virginia, active in Winchester and Richmond. We keep an eye on other areas that are growing: the Route 606 corridor in Sterling; the Route 66 corridor near Manassas, and so on.
What fuels demand?
The growing population. And rising fuel costs makes distributors want to establish distribution points closer to the marketplaces they serve. Cap rates are extremely aggressive—-6.0 to 6.25%--and the demand for quality industrial product is extremely strong. Nationally, it is the strongest product type in terms of overall demand from buyers and return on investment for Sellers. There’s a premium associated with industrial, investors seek it out.
It’s less exposed to real estate cycles compared to the office market, for example. Every company needs warehousing, the need never really goes away. And because of land constraints, and limited industrial zoning, barriers to entry are high and competition is limited.
Why has the market been overshadowed by other product types?
Industrial product isn’t glamorous. It’s focused mainly on efficiency, configuration, and more technical attributes. But people would be surprised at the curb appeal today. It’s not like you’d find in blighted areas. Our buildings are LEED-certified for environmental sustainability, they’re energy efficient, and they’re attractive.
Does industrial real estate get the respect it deserves?
Just remember when the market in Northern Virginia was overweighted in office product. The local and regional economies cannot maintain a healthy service and retail sector without a strong industrial base to service the needs of those sectors of the economy. The price of goods and services is directly tied to the cost of distributing and warehousing, which is often one of the largest components of price a consumer pays at the retail end. It’s a definite source of stability.