Alter Group to Develop Spec 606 KSF Industrial Asset in Phoenix

The Phoenix industrial market is growing hungry for large accommodations and The Alter Group plans to help satisfy users' appetite with the construction of a 605,700-square-foot speculative warehouse/distribution facility at the real estate company's Buckeye Logistics Center.

By Barbra Murray, Contributing Editor

The Phoenix industrial market is growing hungry for large accommodations and The Alter Group plans to help satisfy users’ appetite with the construction of a 605,700-square-foot speculative warehouse/distribution facility at the real estate company’s Buckeye Logistics Center. Alter plans to invest $36 million the project.

If you build it they will come. It’s a refrain not heard every day in the still-recovering national commercial real estate market, but it applies in Alter’s case. “As the cycles work themselves through and markets get healthier, it’s generally the big chunks of space that become hard to find,” Patrick E. Gallagher, senior vice president with Alter, told Commercial Property Executive. “It’s something we see every real estate cycle and this one is no different.”

Actually, there is available space in the Phoenix industrial market–nearly 32.2 million square feet of available space, according to a first quarter report by Voit Real Estate Services. But it’s not just any facility that users are looking for at the moment. Companies are seeking state-of-the art space, and plenty of it. “In Phoenix, we have seen an expansion of a lot of retail and consumer goods products companies that see that the market is logistically a good location to service customers in the Southwest and back into California,” Gallagher said. Amazon seems to agree. The company leases more than 1 million square feet at the 162-acre Buckeye Logistics Center, where Kellogg’s also occupies the tenant roster.

In the Southwest submarket, home to Buckeye Logistics Center, demand is extremely high, with the vacancy rate for spaces over 500,000 square feet having plummeted into the low single digit range, according to Gallagher. Growing demand and limited construction have resulted in the perfect storm for development. Alter will seek one or two tenants for the new facility, but if that’s not enough to satiate local industrial users, the park has additional room for growth. Currently, Buckeye Logistics Center is comprised of three distribution facilities encompassing a total of 1.7 million square feet; however the campus can accommodate an aggregate 3.1 million square feet of development.

Additionally, Alter is working to fill gaps in the industrial market in West Phoenix. In March, the company announced its partnership with John F. Long Properties L.L.L.P. for the development of three business campuses, one of which will be the 300-acre Copperwing Business Park, designed for manufacturing and light industrial users.

As for the Buckeye Logistics Center project, Alter plans to break ground on the newest facility in October, with a goal of wrapping up construction within a nine- or ten-month period. Presently, the developer is working out the financial particulars of the project, talking to various pension funds and other potential investors who would come aboard as joint venture partners. “But that doesn’t mean we won’t go to banks to get short-term construction lending,” Gallagher noted. “There are banks out there willing to lend on speculative projects like this if it has strong sponsorship and a healthy amount of equity invested in the project, We’ve got a very strong balance sheet, our potential partners are obviously very strong and we’re underwriting this with the expectation of a heavy equity contribution, therefore a low loan-to-cost ratio. So there are banks willing to do that.”

It’s not just Phoenix that is hearing an increasingly loud cry for industrial space. A national trend appears to be afoot. “The current strength of the market is in part because of corporations reorienting their supply chains in light of the shifting trade balance,” Tom Silva, a senior vice president with Alter, told Commercial Property Executive. “We are exporting more. U.S. imports fell by the biggest margin in 3 years in 2011. Also we are now more competitive with China in terms of pricing so many companies are on-shoring and consolidating and reorganizing their inventory and distribution networks. So we see demand for mega distribution centers. Growth sectors like healthcare, retail — now a $4.7 trillion sector — and energy and auto are all driving industrial development. Capital is also increasingly being directed from multi-family to industrial which has less distress and is less overbuilt. We saw 417 million square feet in industrial leasing in 2011, the largest since 2007.”