Triten Real Estate Looks To Buy Outdoor Industrial Storage Sites Across the Country
By Marissa Luck CoStar News March 3, 2021 | 6:52 P.M. While most investors have been snatching up small last-mile delivery stations and big e-commerce warehouses, there is another niche industrial asset class becoming increasingly important in the age of super-fast shipping: outdoor storage areas.
Also known as industrial service facilities, or ISF for short, the sites are usually built close to large airports, ports, railroads and major highways and typically are mostly concrete, with less than 20% of the property covered by a building. Tenants use the space to store and sort products, equipment, building materials, containers, trailers and trucks, making the properties an important link in the logistics supply chain.
Triten Real Estate Partners, a real estate firm with Houston and Dallas offices, has been building a portfolio of ISF properties comprising 160 acres over the past 18 months.
Triten Real Estate secured a $150 million investment from an undisclosed institutional investor and plans to buy about $400 million of ISF properties across the country in the next three years, becoming a dominant player in the niche sector to ride the wave of the e-commerce boom, particularly during the pandemic.
ISF properties are usually owned by occupiers, so it's not common for one real estate investor to collect a portfolio of ISF properties as part of a large national portfolio, said Scott Arnoldy, founder of Triten Real Estate, in an interview.
Other real estate companies such as Industrial Outdoor Ventures of Chicago and Alterra Property out of Philadelphia are also active in owning ISF properties, which are sometimes called outdoor storage facilities or industrial outdoor storage. Industrial Outdoor Ventures describes itself as the only national investor specializing in outdoor storage facilities. Meanwhile, Alterra's industrial outdoor storage platform has acquired about $250 million of ISF sites across 50 properties, according to its website.
“There is a whole ecosystem revolving around trucks, trailers, parking and chassis and container yards that is under our nose in plain sight,” said Arnoldy. “It’s just an incrementally fragmented asset class that the brokerage community is not very deep in. There are not a lot of people that work in it.”
Triten Real Estate is under contract to buy $50 million of ISF properties spread across Atlanta, Georgia; Chicago, Illinois; Columbus, Ohio; the Dallas-Fort Worth area in Texas; Denver, Colorado; Kansas City, Missouri; Phoenix, Arizona; Orlando, Florida; and Southern California, according to the company. The sites include truck terminals, equipment maintenance fields, trailer yards, fleet facilities and other outdoor storage areas.
Arnoldy estimates the scale of the ISF asset class could easily rival the size of the Class A warehouse asset class. Triten Real Estate estimates there are $115 billion to $130 billion of ISF properties across the country, compared to $45 billion to $50 billion of Class A warehouse space, citing data from CoStar and the Bureau of Economic Analysis.
Luring Big Investors
Arnoldy argues that institutional capital is underexposed to ISF properties, so Triten Real Estate's goal is to package the properties together into a national portfolio of institutional scale.
"It just hasn't been institutionalized yet. The average size is $7 million to $10 million, so it doesn't have the scale institutions want on an individual basis, but collectively it does," Arnoldy said.
Triten Real Estate’s investment comes as industrial real estate has been one of the most resilient real estate sectors during the pandemic, thanks to surging online sales. E-commerce sales hit $209.5 billion in the third quarter last year, a 36% jump from the same time last year, according to the U.S. Census Bureau.
The rapid rise in e-commerce sales quickly exposed areas where retailers needed to expand, prompting online retailer Amazon and others to go on a development frenzy. CBRE has estimated that every $1 billion in incremental e-commerce sales necessitates about 1.25 million square feet of additional warehouse space.
It’s possible that outdoor storage areas serving the warehouse and logistics sector could also become more in demand as companies try to make their supply chains more flexible.
“As industrial users opt to store more inventory to avoid disruptions in the global supply chain, I could see these relatively versatile properties becoming more popular among users, particularly with vacancy as low as it is among other last-mile" properties, said Abby Corbett, managing director and senior economist at CoStar, in an email. This subset of properties could fit into the last-mile supply chain and likely would be more valuable depending on their location and proximity to consumers, port or transportation hub, Corbett said.
E-commerce isn’t the only user of ISF properties. Plastic manufacturers and petrochemical and energy companies could also tap into these logistics-oriented properties as well. For example, Triten Real Estate has acquired properties in the southeast Houston area that could serve the major petrochemical complex along the Houston Ship Channel that has already seen an increase in industrial space demand even during the pandemic. The sites can also serve as maintenance shops, contractor yards and bulk material distribution sites for big products such as roofing materials or lumber.
“We view ISF assets as mission-critical to the speed and efficiency of the global supply chain, and the pandemic has only further underlined the critical role these ISF assets serve,” Arnoldy said.