Economic expectations, market conditions driving growthBy Peter A. Buxbaum, AJOTWhat does the expansion of the Panama Canal have to do with investments in warehousing properties? The canal expansion will allow larger ships carrying more containers to make their way from production sites in Asia to markets on the east coast of the United States. Some investors, like Woodmont Industrial Partners, a New Jersey-based firm, believe the time is right to invest in properties suitable for warehouses and distribution centers near eastern seaports and inland centers. There are two other factors afoot indicating a robust market for investments in distribution center-type properties. One is a rebound in retail and wholesale transactions, an indication of an improving economy and of increasing demand for goods. The other is the growing interest of institutional investors in industrial, as opposed to commercial and residential, properties. “The main thing for us is the third set locks on the Panama Canal,” said Gene Preston, managing principal at Woodmont Industrial Properties (WIP). “This will allow post-panamax ships through the canal to east coast ports. We think several east coast markets show good fundamentals for investments in distribution center space.” The venture is initially focused on the New York/New Jersey, eastern Pennsylvania, Baltimore/Washington and South Florida areas. The canal expansion is expected to be completed in 2014. The existing can accommodate container ships of 4,400 TEU. The expansion project will triple that capacity to 12,600 TEU. The canal project has sparked port development and expansion projects in North America from Houston to Norfolk. “It’s the old time versus money equation,” said Preston. “Bigger ships operate more efficiently. It’s cheaper to ship goods through the canal to the east coast than to offload at west coast ports and landbridge the shipments east. Shippers have been seeking more diversity in their ports of entry ever since the labor unrest at the ports of Los Angeles and Long Beach in 2002. We also see more goods being manufactured in India and elsewhere that are going through the Suez Canal to east coast ports.” WIP, a relatively new venture, is seeking to raise $200 million to create a portfolio of eight to ten million square feet of distribution space. In addition to Preston, partners in the venture include Eric Witmondt, CEO of Woodmont Properties, an investor in residential real estate, and Marc Lebovitz, president of Romark Logistics. “All of the markets we are looking at have some common characteristics,” said Preston. “All are difficult to penetrate because of the shortage of developable land and all are very densely populated.” Woodmont currently has one asset under contract, a 729,000 square foot logistics center in Clinton, N.J., located along interstate highway 78, 40 miles west of the ports of Newark and Elizabeth 20 miles east of Pennsylvania’s Lehigh Valley. “Most recently the property was a warehouse for Kay-Bee Toys, a company that went under,” said Preston. “We intend to improve the property and convert it from a warehouse to a distribution center.” This will primarily involve adding additional loading docks, 83 when the project is completed, as well as upgrading the building’s heating system. WIP’s efforts mirror a trend identified by the CoStar Group, a commercial real estate information company, in which investment sales of warehouse properties have been growing since the beginning of this year. A number of large transactions in the third quarter of 2011 “underscores the growing demand for this historically safe and reliable sector of commercial real estate,” said a CoStar report. “Investors are particularly interested in large industrial portfolios in solid markets and a shrinking supply of vacant mega-big-box warehouses in the nation’s key distribution portals.” Preston believes the development of the I-78 distribution center will offer advantages as compared to eastern Pennsylvania operations.