The Real Deal New York

Why NYC warehouses can only go up

As demand increases, developers plan multi-story logistics projects
January 29, 2018 09:10AM

From left: Dov Hertz, 640 Columbia Street, Innovo Group’s Andrew Chung and 2505 Bruckner Boulevard (Credit: Google Maps and Innovo)

There are at least two development projects in the city that are planning to build vertical e-commerce warehouses – the first of their kind in New York and among the first in the country.

Going vertical is the logical result of investors’ insatiable demand for warehouse and logistics space in the city to serve “last-mile” deliveries and a chronic shortage of land, the Wall Street Journal reported.

“Our thesis is to build it and they will come,” said Joseph Gorin, co-head of the private real-estate group of Goldman Sachs’ asset-management business, which is building a vertical warehouse in Red Hook with Dov Hertz.

While there are plenty of old multi-story warehouses in the city, new-warehouse development for decades has gone horizontal, primarily in New Jersey where cost are lower. But with the rise of e-commerce, it’s become more important for logistics companies to be within the city’s limits.

Hertz’s DH Property Holdings teamed up with Goldman in November to buy the Brooklyn site at 640 Columbia Street, as The Real Deal first reported. The partners plan to construct a three-story, 370,000-square-foot warehouse with truck ramps that go up to the second floor and elevators that bring a forklift to the third.

The development could cost about $100 per square foot for the land and another $200 per square foot to build, experts told the Journal.

And in the Bronx, Innovo Property Group and Square Mile Capital Management are planning to build an 840,000-square-foot warehouse on the site of the former Whitestone Multiplex Cinemas, which they bought for $75 million.

The total cost for the project at 2505 Bruckner Boulevard is estimated to range from $300 million to $500 million, industry analysts told the Journal. That would be expensive compared to other warehouses, but justified if the developers can hit rents in the range of $30 per square foot, which some experts believe is achievable.

Developers have built warehouses with more than three stories in Asia, but in the U.S. demand in dense cities will most likely be for two- and three-story designs, according to Rob Kossar, head of the Northeast industrial region for JLL.

Demand for warehouse space in New York City is skyrocketing, with rents rising and increased foreign investment. Last week, Prologis paid $265 million for a 350,000-square-foot facility in Maspeth, paying over $750 a square foot. [WSJ]Rich Bockmann