Gramercy to Launch E-Commerce JV, Make Large Logistics Buy
- Aug 24, 2017
Gramercy Property Trust, a New York-based global investor and asset manager of commercial real estate, made two big moves this week as it continues to reposition its portfolio to one focused on industrial assets. The REIT launched a joint venture to acquire, own and manage newly constructed e-commerce distribution facilities and it entered into an agreement to acquire a 41-property, 7.8 million-square-foot warehouse portfolio for $479 million.
The portfolio acquisition—which has properties in Atlanta, Chicago, Houston, Dallas, Memphis, Tenn., and Columbus, Ohio—will close in the third quarter. After closing, along with the pipeline currently under contract, the REIT’s wholly owned real estate portfolio will be 78 percent industrial by net operating income, up from 69 percent at the end of 2016.
Year to date, the REIT has closed $519 million of acquisitions at an average initial cash cap rate of 6.9 percent and 8.1 years of weighted average remaining lease term at closing. With this deal, the company’s 2017 investment volume will be $998 million. It currently has an additional $386 million of acquisitions awarded or under contract.
“The portfolio adds a critical mass of core industrial properties in six key logistics markets at compelling returns, and highlights our capability to underwrite and secure attractive industrial investments in today’s marketplace,” Nicholas Pell, CIO of Gramercy, said in a prepared statement. “The portfolio has an average age of approximately 12 years and adds 41 high-quality, functional industrial buildings to our existing footprint with competitive in-place rents, and potential leasing upside.”
Gramercy will acquire the portfolio free and clear of any debt at 6.2 percent capitalization rate on estimated stabilized NOI. It is 93 percent leased and near-term lease roll is concentrated in properties that have rents that are at or below market rent levels.
Seventeen of the properties are located in Atlanta with a total of 2.5 million square feet of space. Chicago will add nine properties and 1.9 million square feet to Gramercy’s industrial holdings. The remaining assets are located in: Memphis, four with 1.5 million square feet; Columbus, two with 1.2 million square feet; Houston, four at 300,000 square feet, and Dallas with five properties and a total of 400,000 square feet.
The average year built for the properties under contract in this portfolio is 2005.
Gramercy is looking toward new construction and the e-commerce market for its other big deal that will add to its industrial holdings. The company, which noted it’s in discussions with several institutional capital partners, has reached an agreement with an unidentified sovereign investor to anchor the joint venture. The JV’s first acquisition is a forward purchase contract for $642 million. Gramercy said it expects to contribute between 25 percent and 50 percent of equity to the venture, estimated to be between $64 million and $128 million at target leverage levels.
The company will also be issuing between 2.7 million and 4.8 million OP Units to the seller as a component of the purchase price. The OP units will be priced at $29.19 per share and total between $80 million and $139 million at the current share price.
The first acquisition, which Gramercy expects to finance with 55 to 60 percent property level mortgage debt, is a $642 million portfolio comprised of seven newly constructed Class A bulk distribution properties totaling 6 million square feet. Closing of the purchase of the first four properties, estimated to cost $360 million, is expected in the fourth quarter. The second tranche of three properties totaling $282 million is expected to occur in the third quarter of 2018. Each building will be fully leased to a leading e-commerce company and will have initial 15-year term leases with annual 1.75 percent and 2.0 percent rental escalations.
Two of the buildings, with a total of 1.5 million square feet of space, will be located in California’s Inland Empire. The remaining properties, one each, will be in:
- Jacksonville, Fla., 1 million square feet
- Winchester, Va., 1 million square feet
- Dallas, 1 million square feet
- New England I-95 corridor, 900,000 square feet
- Southern New Jersey, 700,000 square feet
“The joint venture will allow us to capitalize on the growing demand for e-commerce distribution facilities across the U. S. and generate attractive risk adjusted returns for our public shareholders,” Britt Winterer, managing director and head of the company’s build-to-suit practice, said in a prepared statement.
It’s been nearly two years since Gramercy presented plans to reposition its portfolio moving away from single-tenant and multi-tenant office properties in favor of industrial and specialty assets. In December, the company made a $521 million purchase of a 17-property, 10.3 million-square-foot bulk warehouse portfolio.
Image courtesy of Yardi Matrix