By Peter Grant
Singapore's sovereign-wealth fund is making a big bet on U.S.
industrial property, as a strengthening American economy and the
growth of online shopping fuel demand for warehouses and
distribution centers.
A venture led by GIC Pte. Ltd. is buying SHYIndCor Properties
from Blackstone Group LP for $8.1 billion. The deal, announced
Monday, is one of the biggest sales of industrial property ever and
would put IndCor's 117 million square feet under GIC's control.
IndCor's properties are spread throughout the U.S., with many
buildings near transportation hubs and population centers in states
including California, Texas and New Jersey. The company is the
second-largest owner of industrial property in the U.S. after San
Francisco-based Prologis Inc., which owns 310 million square feet
throughout the country.
For now, there is plenty of business to go around. The
industrial market has rebounded after seeing vacancy rates rise and
rents fall sharply during the downturn. National vacancy rates are
close to fully recovered from their fall, according to Eric Frankel
of Green Street Advisors. Values are 6% above their previous peak,
set in 2007, after falling roughly 40% during the downturn, he
said.
Indeed, Blackstone rode the improving market to a $2 billion
profit on its IndCor investment, according to people familiar with
the matter. The private-equity firm owned no U.S. industrial space
before it began amassing its 117-million-square-foot portfolio in
2010.
But the industrial market still faces challenges. Rents, which
fell 15% during the downturn, have only rebounded half that amount,
though the recovery has been stronger in newer buildings and
better-performing markets. Also, developers are responding to the
increasing demand with new supply: Warehouses can be prepared
relatively quickly, compared with properties like office buildings
or hotels. Over 125 million square feet of new space will be added
to the market this year, compared with about 72 million last year,
experts say. "There's a tendency for the sector to get overbuilt
quickly, because there are limited barriers to entry," said Mr.
Frankel.
Executives at GIC declined to comment on the deal, which is
scheduled to close in the first quarter of 2015.
The seeds of the IndCor deal were planted during the downturn.
Blackstone accumulated the portfolio in a series of 18
acquisitions, often buying buildings at a discount from distressed
players. Sellers included the Lehman Brothers estate. Blackstone
also won a large portfolio known as CalWest by buying junior debt
on the real estate and then using it to get control of the
equity.
Meanwhile, during the downturn in Asia, GIC greatly expanded its
investment in industrial property by buying Prologis's Asian
operations. At the time, Prologis was under financial pressure,
because of the large debt it took on during the boom years, partly
through its expansion into Asia.
GIC and Jeffrey Schwartz, the former chief executive of
Prologis, used that portfolio to create a new company, Global
Logistic Properties, which went public on the Singapore stock
exchange in 2010. That company owns 301 million square feet of
industrial space in China, Japan and Brazil.
Global Logistic Properties is planning to join GIC in its
investment in IndCor, according to people familiar with the matter.
Global Logistic issued a statement late Monday saying the company
"has not entered into any binding agreement" at this time. The
statement said Global Logistic "continually reviews various
initiatives...including exploring various investment opportunities"
and that the company will make further announcements "when
appropriate."
The U.S. industrial market is huge, encompassing about 13
billion square feet of space. Prologis's occupancy rate increased
to 95.5% in the third quarter of 2014, up from 94.2% a year
earlier, according to Chris Caton, head of research for the firm.
Online shopping today accounts for about 10% of leased space
compared with less than 5% three years ago, Mr. Caton said. That is
boosting the need for distribution space, partly because of the
increasing selection of goods available on the Internet and the
efforts by retailers to decrease shipping time. "The magic of the
Internet is you can get anything you want," Mr. Caton said. "What
that means is you have to have those inventories available to ship
to the consumer."
Blackstone earlier this year indicated it planned to sell IndCor
in an initial public offering, but changed its mind after GIC made
its offer to buy the company, people familiar with the decision
said.
Write to Peter Grant at peter.grant@wsj.com
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