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IOS Developments Drive Forward Despite Entitlement, Zoning Challenges

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With the trifecta of idling engines, diesel exhaust and the constant presence of 18-wheelers, industrial outdoor storage operators fight an uphill battle getting their projects approved by municipalities.

But rising demand — and the rising prices that come with it — has motivated developers to find ways forward despite community backlash.

Entitlement challenges, zoning difficulties and pushback from NIMBY-esque neighbors slow the production of IOS properties, causing developers to create strategies targeted at avoiding these pitfalls to get their deals done and meet a ballooning market need.

“The lack of available supply for truck terminals has historically been driven by local zoning ordinances,” said Cresa broker Eric Rose, who is based in Omaha, Nebraska. “Most communities aren’t friendly and won’t really add any more of these locations unless it’s via a case-by-case, special-use approval process, which is time-consuming and costly.”

As the continued growth of e-commerce and a renewed domestic manufacturing sector add pressure to expand trucking to handle increased logistics demand, some developers are striking out and figuring out how to add new capacity. With IOS vacancy rates slipping to 3% in 2022, according to Marcus & Millichap research, the need is clear. And with the high rents and sales prices being fetched by existing IOS properties, ground-up development can offer a significant payday, especially from interested institutional investors or truck carriers.

Earlier this month, Industrial Outdoor Ventures announced plans to turn the Twin Lakes Travel Park in Davie, Florida, 24 miles north of Miami, into a 38-acre industrial service facility. Situated south of Interstate 595, between State Road 7 and Florida’s Turnpike, the ground-up development will include two buildings totaling 227K SF and outdoor storage yards that can hold 280 truck trailers.

“This is another great opportunity for IOV to meet market demand by developing the type of modern facilities that today’s end users require and in a location that has a scarcity of land available for this type of asset,” Industrial Outdoor Ventures Senior Vice President of Development and Acquisitions Eric Johnson said in a statement.

Turnbridge Equities also just picked up a 3.6-acre site in Rancho Dominguez, California, near Los Angeles, in a $25.5M buy.

“The deal, another 2.49-acre pickup in the South Bay, aligns perfectly with our strategic vision of expanding our Industrial Outdoor Storage strategy in port-adjacent, infill and high barrier-to-entry markets,” a Turnbridge executive said in a statement.

In nearby Perris, California, Alterra IOS spent $8.5M on a 7-acre towing yard in early May, with plans to renovate it and reintroduce it as an IOS property with easy access to the busy Inland Empire.

Chicago-based Dayton Street Partners has been busy with redevelopments and plans to create new trucking facilities, one of just a handful of ground-up IOS developments taking place. The firm just finished a 95-acre terminal with 500K SF of industrial space at 5800 Mesa Road in Houston, which is being leased to the carrier Maersk.

The firm also has a 47-acre, 1,000-trailer terminal set to open in Baytown, Texas, near Houston and less than 20 miles from two Gulf ports, set to open in June. The terminal includes a 24-foot-tall, 1,382-foot-long building meant for unloading and reloading truck cargo. In addition, Dayton Street acquired two truck maintenance facilities in Atlanta with plans to renovate and reopen.

“The difficulties of finding appropriate space and building new facilities — often renovating existing industrial or vehicle-focused real estate, such as mobile home parks or underutilized warehouse sites with vacant buildings and minimal need for rehabilitation — means it often isn’t worth it to seek out real estate on the fringes of a market,” Dayton Street principal Howard Wedren said. “Financing has been rocky lately so it is difficult to get access to capital compared to those with longstanding client relationships.”

It is key to find locations near big travel hubs and ports, spots already in high demand for industrial developers seeking storage space.

“We don’t go to the outskirts,” Wedren said. “We’re very much into the high-barrier-to-entry sites. That’s our model, and we don’t deviate.”

High barriers are common for IOS projects. In Long Beach, California, the firm Cargomatic received city council approval for an IOS storage site last month near the busy Pacific port, just overcoming significant backlash by business groups and local leaders concerned about additional pollution from heavy trucks.

“There are no guarantees at the end of the day,” Cresa’s Rose said. “So do you go through a multiyear development process, not 100% certain that you’re going to get those rezoning and entitlements you need? Or do you just bite the bullet and buy the existing facility, and you can activate your service immediately upon opening the facility?”

In the case of Industrial Outdoor Ventures’ project in Davie, Director of Construction and Properties Rob Chase said the firm had good relationships with local leaders. It helped that the older travel park was showing signs of age and wear, and many in town were happy to replace the site with something newer.

Even with the support, it is a long process. Properly and fairly relocating existing residents is time-consuming, and even with the relatively simple construction requirements of these kinds of projects, it will still take 14 months of site work and construction once the site is cleared.

On the flip side, an empty site in Jurupa Valley, California, near the Inland Empire, that Industrial Outdoor Ventures acquired on the precipice of gaining approvals for construction in a portfolio purchase, now has to restart the entitlement process.

Chase said he sees the value of existing and new IOS facilities continuing to rise, spurring more developers to attempt more conversions, but he acknowledged that the process is often difficult.

“Having the right zoning is absolutely critical,” Chase said. “An entitlement process I describe as being long and drawn out is nothing in comparison to trying to change the zoning. That’s even more of a hill to climb. You could easily flip these properties, but pushing, sticking with it through to the finish line, is worth it.”

 

Source: Bisnow

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The Next Institutional Investment Frontier Is Industrial Outdoor Storage

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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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Self-Driving Trucking, E-Commerce Industries Compete For Industrial Space

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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

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