Writer: Joey Garrand
2 min read April 2021 — High-density population, last-mile opportunities, and infill location facilities into urban pockets are but a few of the traits that make South Jersey ripe for commercial real estate investment. Itay Ron, investment director at integrated Industrial Real Estate Private Equity firm Faropoint, shares why South Jersey is the place to be.
What attracted you to the South Jersey market in the first place?
It was a combination of factors that influenced our decision to enter South Jersey, and the Greater Philadelphia Metro more broadly. There is logistics and distribution related activity that is trickling down I-95 from New York and Northern Jersey down to Central Jersey and now even to Southern Jersey. You can see it in the new industrial construction that is happening in Florence and Bordentown. You can also see it in some of the activity that is happening in Logan Township. It is somewhat rooted in demand pressure for logistics coming from New York City and the surrounding areas.
These are densely populated pockets that generate high demand in places where logistics construction is very scarce, because there is simply no land to build on. Users that are less sensitive to delivery times into the NYC MSA and can afford another 20 minutes to another hour in that respect are trying to reduce some of their rent related costs. That is creating upward pricing pressure on properties in Southern Jersey.
The second price driver is the last-mile e-commerce into Philadelphia. We operate in Dallas, Atlanta, Cincinnati, Memphis, Houston, San Antonio and Jacksonville, Florida. We’re seeing these market forces in many of the large metros in the United States, especially those that are more built out and where there is little to no available land for new construction. This decade long trend was further exacerbated by the pandemic. People were staying at home, e-commerce really took off, and in-store purchases stopped for a moment. That also contributed to the demand for last-mile facilities and locations. All the major real estate publications — CBRE, JLL, Cushman & Wakefield — are seeing strong rent growth in industrial across most of the large metros in the United States.
What is your take on South Jersey’s industrial market?
The common notion in the industry is that COVID did not invent anything that was not here before; it just accelerated underlying currents that were already happening. E-commerce has been growing steadily for the past 10 years. I don’t think we are in a position where e-commerce is now outgrowing or outpacing the market, but time will tell.
For South Jersey specifically, we anticipate we are going to see a lot of the properties in the core markets in Southern Jersey — Cherry Hill, Mount Laurel, Pennsauken and even further south toward Swedesboro and West Deptford come to market. Many of those properties are going to switch hands between private ownership and institutional ownership in the next five years as private owners look to cash out of their properties, which are reaching all-time high valuations due to strong demand and low interest rates. Everything is completely built out next to the bridges that lead into Philadelphia. If someone is less sensitive to delivery times, there may be growth further east toward West Berlin and Glassboro. That is the second tier that grows from that upswing in rent.
At the end of the day, this is all about the decision-making process for a business owner. It’s important to put things in perspective in that for most industrial properties, unlike office and retail, rent is typically not a huge piece in their overall operating expense numbers. If you are a retail or office user, when the rent changes, it may substantially affect your bottom line. With industrial, that’s less common and will only increase the competition for well-located assets.
Is there a lot of dormant capital waiting to get deployed?
Absolutely. There’s a lot of equity waiting to be deployed. It may be equity that was previously earmarked for office or retail and is now being reallocated toward industrial. On the debt side, life insurance and pension companies are looking to deploy debt into industrial vehicles. That is also waiting on the sidelines for a good opportunity to jump in. There is an abundance of equity and debt, which is obviously driving prices upward and cap rates down across the market.
What are some of the advantages of investing with you and your strategy versus others?
It really depends on what kind of exposure you want to get and the different kinds of products out there. Investing into a 1-million-square-foot distribution center is not the same as buying into an investment vehicle that purchases multiple 20,000-100,000-square-foot buildings. These different types of products have vastly different risk-return profiles.
The reason we’re seeing success in the markets that we enter is that we are highly data driven in an industry that is known for being ‘old school’. We streamline everything and aggregate data on a very granular level. We leverage a number of different online platforms, whether it is on the acquisition and sourcing side or the asset management side. We marry the different sets of data together to derive insight and see where rents are growing based on our operations on the ground. Structuring the data also allows us, for example, to refine our underwriting process or streamline communication between us and the tenants, thus improving tenant retention.
In many cases where we are buying from private owners, tenants were used to sending a paper check in the mail once a month. When we onboard a new tenant into our portfolio, there is an online portal with a log-in where the tenants can submit maintenance requests, inquire about billing information, balances, etc. We are also working on a platform that will easily allow our tenants to be notified regarding Faropoint’s vacancies across different markets, supporting their expansion within our portfolio.
Everything is professional, teed up and easy to navigate. Data helps us create value for our stakeholders, namely investors and tenants. At the same time, and while we are diligent about data collection and analysis, real estate really comes down to relationships. We work with all the large brokers in town, both on the Jersey and Pennsylvania sides. We routinely receive potential deals from several different brokerage houses, and aim for 100 percent coverage of the opportunities in the market.
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