- December 30, 2016
The Tampa area took a major step forward to becoming a first-tier investment haven for major institutional commercial real estate owners late last month, when a Phoenix-based real estate investment trust acquired Amazon.com Inc.'s distribution center in southern Hillsborough County.
The $103.6 million purchase by Cole Office & Industrial REIT (CCIT II) Inc. -- a record for a single industrial asset sale in the Tampa market — also will likely spur further interest in top-quality industrial properties, analysts say.
“Anytime an institutional buyer spends $100 million for a single asset in a market, it's seen as a vote of confidence in the whole area,” says Mike Davis, the Cushman & Wakefield executive director who together with Rick Brugge and Michael Lerner represented seller USAA Real Estate Co. in the deal for the 3350 Laurel Ridge Ave. property, in Ruskin.
“And this is not an aberration,” Davis adds. “This sale says a lot about how the Tampa Bay area is becoming a primary target for institutional investors.”
USAA, a San Antonio, Texas, financial services and investment firm whose real estate arm manages $15 billion in assets, has owned two Amazon centers in Ruskin and Lakeland for the past two years, records show.
The 1.02 million-square-foot fulfillment center in Ruskin debuted in 2014 and currently employs more than 1,000 workers.
By comparison, the next-largest industrial sale in the Tampa area occurred in August 2015, when Evergreen Industrial Properties paid $103 million to acquire five business parks — containing a combined 34 buildings and 1.66 million square feet.
With Cole Office & Industrial's purchase, however, major investor interest in similar area assets — especially those focused on the burgeoning e-commerce industry — is likely to spike.
“I absolutely think you'll see more of these types of transactions in our marketplace because there's robust demand nationally in the industrial sector, and because there's been a lot more development in our region over the past 10 years,” says Davis.
In addition to Amazon, Wal-Mart Stores Inc. is developing nearly 2 million square feet of e-commerce-related fulfillment space in Polk County, at a cost of more than $200 million; furniture retailer Rooms-To-Go has debuted a new, state-of-the-art warehouse along the Interstate 4 corridor; and Southern Wine & Spirits has expanded its distribution facilities over the past three years.
USAA also owns Amazon's 1.5 million-square-foot fulfillment center in Lakeland, which also began operations in 2014. Unlike the Ruskin property, it is not listed for sale on the company's website.
USAA and Cole Office & Industrial officials declined to comment on the Ruskin transaction or what the future might hold for the Lakeland property, at 1760 County Line Road, but the move comes amid shifts in their industrial portfolios (see box, right).
In the wake of the USAA sale, though, analysts contend more such mega-deals could materialize along the Gulf Coast.
“This is nothing we've ever seen before for a single asset, so we're in unchartered territory here,” says Kostas Stoilas, an industrial real estate specialist with real estate services firm CBRE Inc., in Tampa.
“But I don't think there's any question that Tampa Bay is climbing the ladder nationally in the eyes of institutional buyers. The whole area is gaining respect, and it's now on the map for major purchases and allocation of capital.”
Stoilas says what could hamper activity is a lack of product regionally that institutional owners like Cole Office & Industrial look for when making purchases.
“The Amazon building is a very specialized property,” he says. “It's not your typical warehouse. And because there aren't many of those types of facilities that also have credit tenants in place, whenever a building is brought for sale it's very competitive.”
Cushman & Wakefield's Davis, too, believes the rise of e-commerce and online shopping will only lead to more development and property sales in Florida, the nation's third most populous state.
As a result, the Tampa to Orlando areas — where e-commerce companies can reach 18 million people within a 24-hour drive — will be uniquely positioned to capitalize on the trend, Davis says.
“Almost 40% of all U.S. industrial absorption of large blocks of space last year was attributable to e-commerce,” Davis says. “That's a huge statistic. It's earth-shattering.”
- K.L. McQuaid
The Ruskin sale of the Amazon distribution center comes amid moves by both buyer and seller to solidify their industrial portfolios.
Seller USAA, for instance, also recently sold a 1.02 million-square-foot distribution center occupied by Amazon in Patterson, Calif., according to its website.
Buyer Cole Office & Industrial, meanwhile, has been concentrating much of its portfolio on e-commerce purveyors and logistics and delivery firms, documents show.
The Ruskin property is its first acquisition in Florida, according to property listings in an April prospectus filed with the U.S. Securities & Exchange Commission.
The REIT, an affiliate of Cole Capital Corp. and Vereit Inc., which owns $16.8 billion worth of real estate in nearly 4,400 properties nationwide, owns buildings occupied by FedEx and UPS, in addition to Amazon.
Besides Ruskin, Cole Office & Industrial also owns a 1.18 million-square-foot property in Petersburg, Va., occupied by Amazon.
Cole Office & Industrial bought that building for $59 million in October 2014, according to the prospectus.
There, Amazon operates under a lease through September 2027, paying a base rent of $3.42 per square foot that is subject to annual increases of 1.5%, the prospectus notes.
Cole Office & Industrial spent a combined $100 million to acquire the buildings FedEx and UPS occupy in Nevada, Iowa, Missouri, Colorado and New Hampshire.
Prior to the Amazon deal in Ruskin, its largest industrial property investment involved a 1.8 million-square-foot warehouse occupied by retail giant Procter & Gamble, in Ohio, according to the company's prospectus.