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What they used to call “back-office” properties, industrial outdoor storage (IOS) space is now a $200-billion asset class that’s firmly on the radar of institutional investors.

The demand for the diminishing number of IOS lots, clustered around US cities, that are zoned to permit outdoor storage is skyrocketing.

IOS lots are being used as storage facilities supporting e-commerce, infrastructure, construction and logistics businesses, storing everything from equipment and vehicles to stacks of containers. They’re typically zoned to restrict any building from covering more than 25 percent of the property. Rental prices are set by the acre instead of SF.

Industrial market experts believe that the IOS market, currently a highly fragmented segment largely devoid of institutional ownership, is on the cusp of becoming a major asset class for institutional investors, with a growth trajectory that could match the rise of BFR in housing.

“They’re not creating more land for outside storage. In most cities, nobody wants to see more outside storage,” Rob Kossar, vice chairman at JLL who oversees the company’s industrial division in the Northeast, told GlobeSt. “It’s zoned out everywhere, so wherever it exists, it’s super-valuable. That’s why institutional investors have suddenly woken upto IOS.”

During the unprecedented shortage of vacant industrial warehouse space in US markets, investors who in the past five years have focused on newer, more “pristine” industrial spaces are now willing to consider these older urban IOS lots, he added.

A heavyweight fight for hegemony in the IOS market is shaping up between Alterra and JP Morgan Chase.  Alterra, which owns 100 IOS properties in 27 states, is launching a $1.5B expansion to defend its leadership in the sector. Alterra is targeting IOS space from 5,000 to 100,000 SF on 2 to 30 acres, with deals between $5M and $20M.

In a recent interview, Alterra’s CEO said the investment is a “multi-decade bet” on the growth trajectory for the value of IOS properties.

Zenith IOS, launched last year as a platform aiming for low-coverage industrial sites for tenants seeking outdoor sites, recently formed a $700-million venture with JP Morgan Chase that will acquire urban infill industrial locations in major cities.

Because IOS are clustered around major cities, the properties are suited for institutional aggregation. The infill nature of IOS properties, along with typical industrial zoning restrictions, limits the supply of IOS space and assures constant demand from a loyal tenant base, resulting in bigger residual values than other industrial properties.

With options for new warehouses with adequate vehicle parking increasingly limited in urban areas, the acreage available at IOS sites increases in value. Industry analysts see the IOS sector consolidating over the next five years, similar to what has happened in the self-storage sector. In terms of value, IOS may soon overtake cold storage as a growth sector, drawing more attention from institutional investors.

 

Source: GlobeSt.

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It’s never easy finding parking, and the fledgling autonomous truck industry is feeling it on a major scale.

The advent of self-driving trucks is motivating a land grab for transportation hubs near major cities, particularly across the Sunbelt states, but finding suitable land has been a challenge.

Two companies have teamed up to tackle the problem.

San Francisco-based Embark Trucks, a self-driving truck startup that went public last year, has partnered with Philadelphia real estate firm Alterra Property Group to form a network of outdoor storage sites that will serve as transfer points.

In September 2021, Embark said it would seek up to 100 transfer sites to be operated by transportation company Ryder. With the partnership in place, the transfer sites will be leased from Alterra.

“Industrial outdoor storage as an asset class has yet to be institutionalized, making it difficult for tenants with specific and nationwide real estate needs, like Embark, to systematically access a network of suitable sites,” Leo Addimando, managing partner of Alterra Property Group, said in a statement.

Founded in 2016, Embark has worked to develop software to make trucking safer and more efficient while tapping into a nearly $700 billion annual market that dominates 80 percent of the nation’s freight.

Embark launched its first trucking route between Los Angeles and Phoenix in 2019, and five companies signed on to use it, though at that time the industry was using Level autonomous vehicles. As the Embark network has evolved to include additional routes, it also needs nationwide coverage to support the nation’s largest fleets as they purchase, own, and operate trucks equipped with Embark’s technology, dispatching them between these transfer points.

But after two years of pandemic-fueled demand for industrial and logistics space, the competition for these spaces — particularly in the environs of highly trafficked cities — is intense.

Strict zoning ordinances that prohibit truck storage add an extra challenge specific to the trucking industry.

But Alterra’s experience could give Embark a leg up in the race for industrial space. “We have the ability to provide Embark a strategic advantage when it comes to identifying, securing, and developing a nationwide network of autonomous-ready sites,” Addimando said in the statement.

Alterra will have competition. In December 2021, logistics firm Zenith IOS launched a partnership with JPMorgan Global Alternatives to buy about $700 million worth of industrial outdoor storage, of which $150 million has been spent so far, according to The Wall Street Journal. Atlanta-based Stonemont Financial Group, likewise, partnered with Cerberus Capital Management to invest in the sector last year.

But while investors are working against the clock to secure land in strategic locations not already zoned against truck storage, they are also having to compete against e-commerce interests that hope to use the land to warehouse products themselves, The Wall Street Journal reported.

Embark, which went public in a $5 billion deal in November, according to The Wall Street Journal, is aiming to have its first fleet of trucks navigating the highways of states such as California and Texas as early as 2024. The autonomous trucks would only take the highways, however, as the transfer points will be needed for human truck drivers to take over before entering cities.

 

Source:  Commercial Observer