J.P. Morgan Global Alternatives and Zenith IOS have formed a new $700 million joint venture that will focus on creating a national industrial outdoor storage platform. Together, the partners plan to amass a portfolio of IOS properties valued at $1 billion within the next two years.
The new partnership should come as no surprise to industry observers. J.P. Morgan Global Alternatives is the alternative investment arm of J.P. Morgan Asset Management, which noted in its 2022 Global Alternatives Outlook report that the company “will be focusing on an array of sectors in the U.S. that are benefiting from high user demand.” And the last sector itemized on the list of sectors in the report is “industrial outdoor storage facilities, including truck terminals, parking and equipment storage in key urban locations.”
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The joint venture plans to set its sights on properties in urban infill locations in major metros and high growth areas across the U.S. Zenith and J.P. Morgan have already begun acquiring assets and expect to have closed $125 million in purchases by the end of February 2022.
To date, the joint venture’s portfolio comprises four facilities in Dallas, including 2601 Sea Harbor Road, 4801 W. Ledbetter Drive, 6410 Singleton Blvd. and the approximately 27-acre property at 2118 California Crossing. A fully fenced site, 2118 California sits roughly 1 mile from Interstate 35 and 10 miles from Dallas Fort Worth Airport. The joint venture acquired the asset from an entity of Anani Pumping, with the assistance of an approximately $9.7 million loan from FirstCapital Bank of Texas.
Industrial’s rising star
Industrial real estate is still booming and within the sector, outdoor storage is becoming increasingly coveted among both users and those seeking a safe and lucrative landing spot for their capital. For starters, industrial outdoor storage properties, also known as industrial service facilities, are often found in infill locations and are not in ample supply, which translates into greater residual values than conventional industrial assets, as noted in a Fall 2021 report by real estate firm Stan Johnson Co. And there’s much more to the niche to whet an investor’s appetite.
“The renewal rate for tenants in this sector is also quite high, due in large part to the constrained supply of similar properties and higher-than-average replacement costs. Many of these facilities are primed for future alternative uses, but most landlords find that re-tenanting is simply not an issue,” according to the Stan Johnson report. “Supply is tight, and tenants in this property sector are benefiting from the e-commerce and construction booms that both show no sign of slowing. This creates a ‘stickiness’ that more traditional industrial facilities sometimes lack and helps keep tenants at their current locations.”
Other companies that are targeting the IOS sub-sector include Imperium Capital, which revealed in September 2021 that it would invest more than $250 million into industrial outdoor storage assets over the coming year. In the third quarter of 2021, Rexford Industrial Realty acquired roughly 110 acres of income-producing, low-coverage industrial outdoor storage sites in three separate transactions.