As Blackstone & Prologis buy up industrial, these local players make bank

UPDATED January 20, 7:39 p.m. Malcolm Butters’ firm has been building industrial properties in South Florida for about 30 years. But the last three or four of those years have been nothing like what came before.

Companies such as Butters Construction have been forced to adapt to changes within an industrial market that has seen a massive influx of institutional capital from the likes of Blackstone and Prologis. Thanks to the rise of Amazon and e-commerce, these firms — especially Blackstone, which has north of $500 billion in assets under management — are paying top dollar for institutional properties.

That makes it difficult for smaller players like Butters to compete for deals to buy and develop new properties, especially in a place with little land left to build. So instead, Butters has pivoted to working to assemble land to sell to institutional developers or lease and manage properties so it can collect fees.

“Our future is working with institutional REITS [real estate investment trusts] to find deals and put them together,” Butters said. “We are going to be more of the boots on the ground, the guys finding deals for these [institutional] guys.”

That’s just one of the ways local players are repositioning themselves as national firms muscle their way in and drive industrial prices and rents skyward. South Florida’s industrial property owners stand to benefit most from the rising land prices, and some have parlayed those sales into long-term partnerships and management agreements that keep revenue coming.

The Easton Group was one such seller. In 2016, the Doral-based developer and brokerage sold seven industrial buildings (six in Miami-Dade County and one in Broward County) to Atlanta-based Invesco Advisers for $98 million. As part of the deal, Easton remained the manager and a minority owner of the 54-acre portfolio, with a 10 percent interest under the new joint venture.

“A lot of these folks, they need volume,” said Jose Hernandez-Solaun, president of The Easton Group, in reference to the out-of-state buyers.

“They look to folks like us who are aggregating products,” he said, adding that he is working to compile smaller industrial properties to sell to larger institutional investors. “Blackstone and similar companies turn to us when we have volume that they are interested in and then purchase those portfolios at attractive cap rates.”

Industrial push

It’s no wonder that industrial players are coming around to warehouse spaces, as the growth of e-commerce has created exponential demand for it. For every $1 billion growth in e-commerce sales, an additional 1.25 million square feet of distribution space is needed to support that growth, according to research by CBRE in 2017.

“For the first time, industrial became sexy,” said Hernandez-Solaun. “For a long time, we were thought of as the red-headed stepchild.”

The leaders in this space, Blackstone and Prologis, own nearly 1.1 billion square feet of warehouse space in the U.S., according to data compiled by CBRE Group Inc.

In the past two years alone, Blackstone Group purchased 36 properties in South Florida for a staggering total of $417.4 million.

In 2019, institutional investors made up 31.9 percent of the buyers of industrial properties in South Florida, according to data from Real Capital Analytics compiled by the brokerage Avison Young.

And it’ll only grow from there. Large investment firms will increasingly move into industrial assets as e-commerce continues to grow and other assets classes start to see signs of distress, said Steve Wasserman of Colliers International, who has brokered deals for Blackstone.

“They look at industrial as a safe asset as the office world is changing. Just look at WeWork,” said Wasserman. “If a tenant leaves the industrial space, the fit-up is a lot less.”

In June, Blackstone announced the largest industrial real estate transaction of all time: It bought Singapore-based GLP for $18.7 billion. The assets acquired in the deal totaled 179 million square feet — nearly double the size of Blackstone’s existing U.S. industrial footprint. Blackstone also purchased the logistics assets of Colony Capital for $5.9 billion in September. The acquisition was a gain of 60 million square feet in assets across 465 industrial buildings.

Prologis has also been on a shopping spree. In October, the company purchased rival REIT Liberty Property Trust for $12.6 billion, which encompasses 107 million square feet of logistics space.

The monster deals by these national actors have resulted in an increase in industrial prices in South Florida.

To understand just how quickly and drastically prices have spiked, look to the example of Fordome Investments’ sale of 2.2 acres of vacant land in Medley. In December, the Miami-based firm sold the property to Blackstone for $1.5 million per acre. That’s nearly triple the amount Langer Holdings Corp. paid for vacant Medley land in 2015, when it bought 9.75 acres for about $544,000 per acre.

“The value of the property did come as a bit of a surprise,” said Fordome Investments’ Kris Rodriguez.

The biggest issue for all industrial developers in South Florida is the scarcity of land. With the Everglades to the west and the Atlantic Ocean to the east, developers have fewer options to build, especially as land in former warehouses in such places as Wynwood and Allapattah become entertainment and art hubs.

“If you look at industrial spaces like Wynwood, you are seeing more of this type of space getting squeezed and turn into restaurants or high-end spots,” said David Druey, Centennial Bank’s Florida regional president. “Those industrial spaces have to go somewhere else.”