Lexington Realty Buys Big, Eying E-Commerce

The $180 million portfolio transaction is part of the company's plan to transition to a 100 percent industrial-focused net-lease REIT.
600 Gateway Blvd. Image courtesy of Lexington Realty Trust

Lexington Realty Trust has acquired a 2.4 million-square-foot e-commerce industrial portfolio in metro Cincinnati from IDI Logistics for about $180 million. The three buildings are all recently constructed, Class A warehouse/distribution facilities in Park North at Monroe, a logistics park developed by IDI along the east side of Interstate 75 in Warren County, in the northwest metro area.

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Each property is 100 percent net-leased to notable tenants/guarantors. Amazon occupies the park’s largest facility, the 1.3 million-square-foot Building 6, at 700 Gateway Blvd. Hayneedle/Walmart is a tenant in the 994,000-square-foot Building 8 at 600 Gateway Blvd., and Blue Buffalo—a division of General Mills— leases the 143,700-square-foot Building 5 at 675 Gateway Blvd. The portfolio has a weighted-average lease term of approximately 9.3 years and average annualized rental escalations of about 2 percent.

675 Gateway Blvd. Image courtesy of Lexington Realty Trust

In its announcement on the transaction, Lexington described the acquisition as consistent with its investment strategy of purchasing well-located, high-quality industrial assets as it transitions to a 100 percent industrial-focused net-lease REIT. So far this year, Lexington’s investment activity totals roughly $440 million. In addition, the company notes that it currently has about $170 million of warehouse/distribution properties under an accepted offer or contract.

Lexington’s strategy to transition toward being a pure-play in single-tenant, net-leased industrial properties has been underway for at least a year now. In September 2018, the REIT sold a 3.8-million-square-foot office portfolio for $726 million, though it kept a 20 percent stake in the joint venture that purchased the assets.

A consistently tight market 

The two-state metro Cincinnati industrial market saw a slight uptick in vacancy, but the average direct vacancy increased to only 3.6 percent, still well below the historical average, according to a second-quarter report from Cushman & Wakefield. Industrial construction hit a record 9.7 million square feet, which is expected to help push total vacancy over 4 percent.

Nonetheless, the amount of built-to-suit space and new leases are expected to keep net absorption positive through the end of 2019. The average asking rent for Class A bulk warehouse space in the Northwest submarket is $4.17 per square foot, again per Cushman & Wakefield.