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Business Observer Friday, Apr. 6, 2018 5 months ago

q&a | Steven Kossoff, Meridian Development Group

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Meridian Development's Steven Kossoff discusses industrial trends
by: Kevin McQuaid Commercial Real Estate Editor

STEVEN KOSSOFF

Managing Director

Meridian Development Group

Tampa

 

Steven Kossoff formed Meridian Development Group in 2001 after working in construction management and for a decade as an industrial real estate agent with commercial real estate brokerage firm Cushman & Wakefield in New York. His firm has acquired, renovated and sold millions of square feet of office and industrial space from North Carolina to Florida. Its notable projects include the Meridian Distribution Center, a 907,000-square-foot former Winn-Dixie warehouse in Sarasota that it bought in 2006 and sold last year to a Canadian firm for more than $52 million, and Meridian 589, a 252,000-square-foot office complex in Tampa it acquired last year. Kossoff says he hopes to grow the company’s portfolio from three million square feet at present to five million square feet.

Of all the commercial real estate sectors that have demonstrated growth this cycle, industrial space seems to be the most resilient. What’s driving that sustained growth?

I think the biggest driver of growth by far has been the expansion of the e-commerce sector, the idea that people shop online, and businesses associated with that, including last mile delivery companies. But all the growth comes back to the need by distributors like Amazon for large industrial spaces, which existed even a decade ago on a very limited basis.

Define “last mile delivery”?

It means that rather than relying on deliveries directly from UPS or FedEx or some other third-party company to take goods from a warehouse and transport them to a customer, distributors like Amazon — which has a 1.2 million-square-foot fulfillment center in Ruskin, near Tampa, and another, similarly-sized facility in Lakeland — now have contracted with companies or set up their own networks to operate smaller distribution platforms closer to population centers. The last mile deliverers, in turn, handle taking goods from a larger warehouse to a smaller one and, from there, to the customers’ door.

Do you see last mile delivery being a sustainable trend?

I do. Again, Amazon is really driving all this, and as they move into having their own air freight capabilities I think you’ll see more of it going forward. There will be more overnight delivery, and I think that’s just the beginning. So no, I don’t foresee that trend going away or major changes to that distribution model.

What does that trend mean for Gulf Coast industrial developers?

It means continued low vacancy, rising rental rates for well-located properties and additional spec development to meet demand.

Are industrial fundamentals strong though?

The buildings that are being occupied today tend to be more modern facilities, with 36-foot-clear ceiling heights and other features, and if you look at the development trends, what’s being built are spaces measuring 200,000 square feet to 600,000, in well-located markets like Lakeland that are central for distribution, or near urban population centers like Tampa or even Sarasota. And remember, beyond the e-commerce trend, Florida and the Southeast has a strong economy with between 800 and 900 people a day moving to Florida alone. It’s like 2005 and 2006 again, and as a result, consumer goods are pushing industrial occupancies higher.

So there’s a chance that the market could go bust again if the population gains recede?

The industrial sector never really went bust, unlike residential housing or retail space, because there wasn’t a big overhang of space in the sector. The amount of spec space didn’t outstrip supply, and I don’t foresee that happening now or anytime in the foreseeable future. Even though there is a lot of spec development occurring in Florida now, it’s being leased and occupied by good credit tenants, and we’re not seeing overdevelopment.

What is Meridian as a company focused on now?

Our business model continues to be to find sub-par performing industrial and office properties and apply our management strategies to get them to perform better through renovations and other techniques. Our acquisition criteria continues to be to look at properties from Raleigh, North Carolina, through Florida. We have a 250,000-square-foot warehouse in Raleigh where we’re working on new leases, we bought a 175,000-square-foot low-rise office project in Tampa that we’re renovating and leasing, and we acquired an 11-building portfolio, also in Tampa, that we are repositioning with a series of new leases.

What trends do you see coming in the industrial sector over the next two-plus years?

I see more and more industrial spec development on the horizon, as a result of low vacancies and rising rental rates. I also see continued historically high sale prices on certain investment properties.

Do you envision industrial space being a more integral part of the larger supply chain in the future?

Oh, absolutely. E-commerce and larger industrial boxes will be the model for the foreseeable future. People have come to rely on the convenience of clicking on their phone or computer and having something show up the next day, or same day. I don’t think we’ve even seen the future of that yet.

So logistics firms won’t be able to rely exclusively on 53-foot trailers, huh?

No, and that circles back to the need for last mile delivery. I think the supply chain is going to only get more and more sophisticated going forward.

What’s the biggest challenge developers like Meridian face?

Finding good sites and getting projects built with affordable rents. Construction prices have gone through the roof with all the growth that’s occurred along the Gulf Coast and in Central Florida, and that’s greatly impacted costs.

 

“I see more and more industrial spec development on the horizon, as a result of low vacancies and rising rental rates.” — Steven Kossoff, Meridian Development Group

 

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