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An Eye for Opportunity: Bixby’s Outlook for Industrial Expansion
At the top of Bixby Land Company’s proven investment strategy is the goal to create value for the investors it serves. Led by an entrepreneurial culture and in-depth market intelligence, Bixby’s vertically integrated investment and management platform consists of a mix of industrial and office properties. Each month, the acquisition team diligently screens between $150-million to $250-million worth of industrial properties, searching for the right buildings in the right markets. With industrial investment outperforming all major property types over the last three-, five- and ten-year periods,[1] and COVID-19 greatly accelerating consumers’ shift to e-commerce shopping,[2] Bixby’s seasoned and experienced management professionals have spotted a distinct investment opportunity in Light Industrial and Regional Logistics properties. Accounting for 50% of all US industrial space and well-positioned to provide attractive returns for the foreseeable future, Bixby’s focus is on properties ranging from 50,000 to 350,000 square feet in supply-constrained markets.[3] What sets Bixby’s Industrial Acquisition Strategy apart? In the last two years, Bixby Land Company acquired 2.8 million square feet of industrial property through twelve transactions valued at over $260 million. Backed by senior executives with 20- to 30-plus years of proven investment experience and extensive relationships in the industrial sector, Bixby’s strong acquisitions pipeline continues to be bolstered by “off market” transactions. “Seven of our last eight transactions have been off market. We are seeing a lot of competition to buy industrial properties right now and ‘marketed deals’ are tending to draw ten to fifteen offers each. By working with brokers through non-marketed transactions, we are able to get better access to deals and achieve better pricing on those deals,” Bixby Chief Investment Officer Mike Severson shares.   Why Light Industrial and Regional Logistics properties?   The shift from brick-and-mortar retail to e-commerce distribution has increased demand for warehouse space by over 30% in the current cycle.3 With more purchases skipping retail center shelves and coming straight from warehouses, Bixby spotted a clear opportunity to add value to the market in the low-finished warehouse distribution space. “E-commerce is certainly driving warehouse demand, but we’ve found that within these warehouse distribution buildings, 30% of our tenants are actually manufacturing,” Severson says. “The (light industrial) buildings are suited to a much more diverse tenant base than we see within the million square foot warehouse space.” These smaller adaptable buildings attract a cross section of manufacturing, regional and local (last mile) distributors. This diverse mix of tenants has significantly limited the receivable issues that many other product types have experienced during this current pandemic, with Bixby collecting 98% of its industrial portfolio rents through Q2 2020. As demand continues to exceed supply in spaces under 500,000 square feet, high barriers to entry and rising construction costs are curtailing new development. For this reason, Bixby will focus on investment sizes under $40 million which will result in less institutional pricing pressure, higher yield and more “off market transactions.” The initiative mitigates risk by targeting: Properties in 25 metropolitan areas with limited supply, solid wage and employment growth, and attractive supply/demand imbalances Tenants in a diverse mix of sizes and industries to reduce volatility through market cycles and maintain consistent credit “We are targeting high-population growth markets with strong job demand in the western and southern US,” Severson says, adding that locations must be a distribution hub of sorts when it comes to surpassing Bixby’s initial screenings. From there, Bixby focuses on property features, targeting Class A warehouse distribution properties with 30-feet or higher clear heights, ESFR sprinklers, ample loading, trailer parking and superior truck route access. Buildings can be single and multi-tenant NNN leased or vacant buildings. “We are very comfortable with vacancy risks these days, given the fundamentals in the industrial market,” Severson explains. Acquiring larger tenants and securing three- to ten-year leases tends to bridge market fluctuations or potential economic downturns, lowering volatility. “We find that within that 50,000 to 350,000 square foot range, you get a multitude of different tenant types - everything from rated credit to regional credit,” Severson says.   What are the investment objectives?   Exceeding growth rates in spaces over 500,000 square feet, market rents in the 50,000- to 350,000-square-foot size range have grown an average of 6% annually over the last five years.[4]  This leaves a substantial number of investment opportunities with under-market rent creating the ability to raise rents as tenants expire - thereby increasing cash flow and disposition value. Targeting $100-million to $300-million in investment, Bixby’s new capital investment initiative has core-plus to value-add returns and five to seven year term options. With a proven track record for creating value (NOI growth), investors have the opportunity to create substantive upside value by acquiring attractive Light Industrial and Regional Logistic assets at meaningful discounts by partnering with Bixby. Bixby currently owns and operates over 8 million square feet and over $1 billion of industrial property across the western and southern U.S. Through extensive internal research, Bixby provides in-house asset management, property management, finance, leasing, and reporting expertise. After investing in industrial properties for their own account and with multiple institutional partners for some time Bixby is delighted to open up the opportunity to new investors. Learn more about our new equity investment expansion: bixbyland.com/contact-us/ [1] NCREIF Property Index; December 31, 2018 [2] Prologis Research, COVID-19 Special Report, Fifth Edition; May 12, 2020 [3] Green Street, 2020 U.S. Industrial Outlook; January 21, 2020 [4] Prologis Research, COVID-19 Special Report, Fifth Edition; May 12, 2020
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