Last Mile Hub Investor Closes Portfolio Deal with Goldman Sachs

By Candace Carlisle, Reporter, Costar

Shift in Consumer Preferences Fuels Industrial Demand

The merchant banking division of Goldman Sachs and Dalfen Industrial, one of the nation’s largest buyers of industrial real estate, have teamed up to buy a 10-property last-mile distribution hub portfolio in the United States as part of a long-term investment partnership.

The portfolio deal is one of a series of purchases to close before year’s end by Dalfen Industrial, which has its executive office in Dallas, for a total of $1.3 billion in deals this year when including land.

Purchases this year were largely influenced by implications from the ongoing pandemic as consumers have increasingly shifted their shopping habits online as the number of COVID-19 cases continue to escalate in the United States.

“Today is the hottest industrial market we have ever seen because of the seismic shift of consumer buying demand,” said Sean Dalfen, president and chief investment officer of Dalfen Industrial, in an interview with CoStar News. “Because of COVID-19, what would’ve taken five to seven years for consumer buyers to shift, it’s happened in six months. More people go online because they are forced to, and demand for industrial space has continued to increase, and we are at the early end of a long ballgame. Industrial is the new retail.”

That investor demand for industrial space has Dalfen Industrial working to close deals to make way for new development. Dalfen Industrial has development projects underway throughout the United States, including three speculative projects in Texas.

Tuscany Development Rendering

In Austin, the company plans to soon begin construction on an industrial complex called Tuscany Industrial Park at a yet-to-be addressed site near Tuscany Way and Ferguson Avenue in northeast Austin. Completion on the speculative project, totaling three buildings spanning nearly 374,000 square feet, is scheduled at the end of 2021.

Dalfen Industrial also closed on two development tracts earmarked for speculative industrial projects near Texas airports. One tract is located near East Scyene Road and Airport Boulevard in Mesquite in the Dallas-Fort Worth area, near the Mesquite Municipal Airport, with plans to build about 936,000 square feet by early 2022. The other development site is located along the state Highway 130 frontage road southeast of Austin near the Austin-Bergstrom International Airport. Dalfen Industrial plans to develop about 800,000 square feet there with an estimated completion date by mid-2022.

Dalfen Industrial also closed on two development tracts earmarked for speculative industrial projects near Texas airports. One tract is located near East Scyene Road and Airport Boulevard in Mesquite in the Dallas-Fort Worth area, near the Mesquite Municipal Airport, with plans to build about 936,000 square feet by early 2022. The other development site is located along the state Highway 130 frontage road southeast of Austin near the Austin-Bergstrom International Airport. Dalfen Industrial plans to develop about 800,000 square feet there with an estimated completion date by mid-2022.

“One of the reasons we are building in certain markets is that it makes a lot more sense to build rather than buy, especially if the existing product is older and there’s significant demand in the market and the supply is insufficient,” Dalfen said, adding Mesquite was one of those markets where building makes sense. “We can build these facilities to perfection and attract the best tenants and get the highest rent.”

Latest Deal

In a recent interview with CoStar News, Dalfen said he expected even more deals between Dalfen Industrial and the merchant banking division of Goldman Sachs. This go-around, the duo closed on a 10-property portfolio of last-mile industrial properties. In all, the partnership between the two entities now sits at 52 properties totaling 7.13 million square feet in 19 major U.S. markets in 10 states.

The 10 properties in the recently purchased portfolio include by state:

  • Colorado: Aurora Center at Gateway I, a 75,000-square-foot industrial property between downtown Denver and Denver International Airport.
  • Florida: Interstate Park Logistics Center, a 204,900-square-foot property entirely occupied by Serta in a long-term lease in West Palm Beach. The Blue Heron Logistics Center, a 152,052-square-foot industrial facility in West Palm Beach, whose largest tenant is FedEx Home Delivery
  • North Carolina: The CLT Fulfillment Center, a nearly 60,000-square-foot facility in Charlotte, just south of the Charlotte Douglas International Airport.
  • Texas: The Mark IV Commerce Center, a three-building, 1 million-plus-square-foot industrial park in Forth Worth, in a deal noted by CoStar News in October. The other properties are in Schertz, called Tri-County 5 & 7 and the Schertz Distribution Center, and are occupied by tenants including TJ Maxx and Brinks.

Looking Ahead

In seeking new opportunities, Dalfen said his team is reviewing the potential redevelopment opportunities in certain markets such as New York and Dallas for sites now occupied by aging industrial buildings or another type of real estate. Large vacant department stores can also show promise for logistics real estate, he said.

“Converting vacant retail department stores into logistics facilities is absolutely a reality, they have the parking and are ideally positioned as last-mile fulfillment centers,” he said. “This doesn’t mean buildings attached to malls, but more big-box retail, like an old K-mart or something with a lot of parking around it.”

Real estate costs can be one of the smallest components of expenditures in a supply chain, he said, with the time it takes to move goods being the most important cost to control in the logistics environment. If there’s ongoing traffic problems or it simply takes too long to load goods up for shipment, Dalfen said tenants will pass on a property.

One of the biggest impediments to the conversion of vacant retail space into logistics facilities are the cities where the properties are located, Dalfen said. Not all cities want a warehouse in what was once a shopping destination, he said, however, as the retail landscape continues to shift, perhaps it won’t always be a hurdle.

“As retail changes and becomes more e-commerce-oriented, I think we’ll see a lot of brick-and-mortar retail be converted into last-mile fulfillment centers,” he said, adding he believes cities will come around as they look to focus on employment opportunities
rather than defunct retail spaces.

 

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