Wednesday, November 30, 2011

Warehouse sales are booming

Investor interest in warehouse distribution-center properties in the Phoenix area continues to defy both the recession and the otherwise dismal real-estate market, with the closing of a $33.3 million sale on Monday in west Phoenix, brokers involved in the deal said.

The joint sale of two massive warehouses in Phoenix totaling about 640,000 square feet was the area's largest transaction involving industrial real estate since the second quarter of 2008, said Don and Payson MacWilliam, senior vice presidents at Colliers International in Phoenix who represented both buyer and seller.

The MacWilliams are brothers who have worked as a team brokering industrial real-estate deals in the Phoenix area for more than 20 years.

The seller was Alliance Beverage Distributing Co., a large alcoholic-beverage distributor, which occupies all 450,000 square feet of the larger of the two warehouse properties sold. The adjacent 190,000-square-foot property is occupied by Updike Distribution Logistics, which provides warehousing and supply-chain logistics services.

Aside from being the largest sale of its kind in years, the deal was significant because its sale price per square foot of about $52 was more than what it would cost to build a similar facility today, Don MacWilliam said.

Most types of commercial real estate in the Phoenix area have been selling recently for far less than their original construction costs, with warehouse distribution centers being the only significant exception.

The exceptionally high value of such properties, particularly those in the West Valley, is due primarily to a surge in demand among e-commerce providers and large, traditional retailers for relatively inexpensive warehouses situated within a day's drive of the Southern California coast, where a wide variety of Asian products are offloaded for U.S. consumption.

According to a recent report from Colliers, users of industrial real estate snapped up 1.6 million square feet of empty space in the third quarter, which marked the seventh consecutive quarter of rising demand.

The Colliers report said industrial tenants have absorbed about 9.3 million square feet of vacant space during the past seven quarters.

The surge in demand is likely to continue as large e-commerce providers continue to seek out additional space for order-fulfillment and distribution centers to serve Arizona, California and other Western states.

Seattle-based online retailer Amazon announced plans in July to open a 1.2 million-square-foot distribution center at 800 N. 75th Ave. in Phoenix, its fourth such facility in the Phoenix area.

Other retailers, including Home Depot, Macy's and Dick's Sporting Goods, either have signed leases on large existing warehouses in the West Valley this year or announced plans to build their own distribution centers.

The vacancy rate among industrially zoned properties has plummeted at an unprecedented rate, from nearly 18 percent in the first quarter of 2010 to 14.6 percent at the end of the third quarter this year, Don MacWilliam said.

High demand also is driving new construction, according to Colliers' third-quarter analysis, with nearly 3.7 million square feet of warehouse and distribution-center space currently under development.

Alliance Beverage had just recently purchased the two buildings it sold Monday, inside Papago West Business Park near 47th Avenue and Roosevelt Street in west Phoenix, from developer and former property owner RJB Development.

RJB had granted the beverage distributor first right of refusal on any attempted sale of the property as part of a 20-year lease agreement signed in 2007, Don MacWilliam said.

Alliance Beverage then sold the properties for an undisclosed profit to CreXus AZ Holdings I LLC, a New York-based real-estate investment trust. The buyer and seller also negotiated a new 17-year lease agreement, he said.

REITs pool money from a group of investors to purchase and hold commercial properties, using the lease revenue they generate to pay the investors regular dividends.

Local real-estate analysts say investor interest in Phoenix-area distribution centers could help spur economic recovery, put construction crews back to work and bring much-needed jobs to the region.

"This transaction further confirms the leasing strength and investor confidence in the southwest Valley submarket and in Phoenix as a whole," Don MacWilliam said.

by J. Craig Anderson The Arizona Republic Nov. 29, 2011 06:20 PM

Warehouse sales are booming

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