Week of March 4, 2021
There are three things I have seen since the start of the year.
Many institutional investors are hard at work buying properties that would normally be considered sub-investment grade. They are buying older, smaller and obsolete buildings that were the domain of owner/users, who are now being outmaneuvered by full time real estate investment firms. Lots of targeted capital partners are also coming in. The same types you see after a recession with sophisticated offerings of preferred debt, waterfalls, and different tranches of equity. Development partners raise a small slice of equity that will become the most profitable if the project succeeds, but will also be wiped out if the project fails. The immense amount of money is a mixed blessing. From a broker’s perspective new cash coming into the market is a positive development. At the same time, investors are taking away opportunities from owner/users, my traditional clients who rely on me the most.
On the tenant side, it’s a race to secure vital space at key nodes on the supply chain network. In Los Angeles, it means warehouses for both local and international distribution. Most markets don’t have this double purpose for warehouses and it makes Los Angeles special. Container yards, too, have become important with supply disruptions and space scarcity at the port. The notable shortage of certain goods and component parts has talented logistics company paying up to make their networks more efficient by acquiring space at the right locations.
Finally, lots of deals were put on hold (and still are) because of Covid-19. But a big thaw is on the way. Many properties I could not sell last year are now in escrow as of the start of the year. I thank my customers for sticking with me through these times. More importantly, space shortages will become more pronounced and if you have plans to expand, don’t wait too long. Los Angeles industrial is and will continue to be a hot part of the market as the economy fully re-opens. There will be higher rents and operating costs to come.