MacRo LTD Blog

REIT Purchase Boosts Frederick Warehouse Sales by $38 Million during 2Q 2013

Fundamentals for Frederick’s industrial properties are mixed, but overall the market for industrial properties improved during the second quarter of 2013.

REIT Purchase Boosts Frederick Warehouse Sales

We are past the halfway mark of 2013, and so far no dips or stallsafter a strong new year–Frederick’s commercial real estate market is still humming along.

As the recovery of the commercial real estate market appears to be in earnest, investors are exploring the potential of other commercial segments besides multifamily.  Industrial properties turned up on their radar as vacancy rates began dropping and rents stabilizing.

In a recent MacRo report post, we reported on the $38 million sale of three warehouse properties in Frederick that were included in a REIT portfolio of 23 properties worth $242 million.

According to the analysts at CoStar, REITS and other investors have become so enthusiastic about industrial real estate that CAP rates for the segment are at historic lows of 6.5%.  During the past quarter, domestic spending accounted for almost 70% of total GDP growth, and domestic spending translates to good consumption–which is always good for warehouse demand.

On the local level, the Truck Tonnage index is up over 5% year over year, which reflects a recovery in local markets and a firming up of small bay warehouse demand.  At MacRo, we’ve noticed that the lease market for small bay warehouse space in Frederick is hovering around the $4.50-$4.75 per square foot range;  listings priced at higher rates seem to sit on the market for a long time.

Inquiries from interested buyers of warehouse space have been brisk during the past couple of quarters, and we get purchase offers even for MacRo listings advertised for lease only.

There were $40 million worth of warehouse properties sold in Frederick during the second quarter of this year, versus about $1 million during the same period last year.  According to CoStar’s databases, vacancy rates in Frederick have risen since last year (about 15% this quarter versus 12% this time last year),and lease rates are slightly lower:  $5.52 per square foot versus $5.49 last year.

It’s important to keep in mind that some of the decline in average lease rates is due to renewals of  leases that were negotiated near the market peak, and are now rolling over to current market rates.  The industrial market here in Frederick will continue to feel the effects of lease rate rollbacks for the next 18 months of so, but to a lesser degree as the market continues to recover.

Following are the top five sales of warehouse properties during the second quarter of 2013:

1) $37,820,100     Wedgewood Business Park – 6900 English Muffin Way and 4612 Navistar Drive; McKinney Industrial Park – 4451 Georgia Pacific Blvd

First Potomac Realty Trust sold a portfolio of 23 industrial properties worth $242 million to Blackstone Real Estate Partners. The three properties listed above were included in that portfolio.

4612 Navistar Drive, a vacant light manufacturing building 209,369 SF in size, sold for $15,533,300 ($74.10/SF). 6900 English Muffin Way, a 165,690 SF warehouse, sold for $10,998,300 ($66.38/SF).  4451 Georgia Pacific Blvd, a 169,592 SF warehouse, sold for $11,288,500 ($66.56/SF).

First Potomac intends to reinvest the proceeds of this sale into high-quality LEED certified office properties in the Washington, D.C. area. They are pursuing a niche market of Class A energy-efficient office properties.

2) $1,100,000     MAACO Body Shop – 1439 Tilco Drive

Duaine Goodno sold this property to John Fitzgerald of Fitzgerald Auto in April ($87.65/SF).  Fitzgerald also purchased an adjacent 1.4 acre parcel of industrial zoned land for $250,000.

3) $600,000     2210 Urbana Pike

Lindsay Blair sold this storage warehouse in May to Core Commercial Brokerage.  The property is 6,000 SF ($100.00/SF).

4) $392,500     Industrial Center East – 1539 Tilco Drive

H&G Ice Frederick LLC sold Unit 119 in this industrial condo building to PJ Holdings, LLC in June ($90.63/SF).

5) $385,000     Industrial Center East – 1539 Tilco Drive

J&C Trout Enterprises LLC bought Unit 102 , a 4,288 square foot industrial condo, in April ($89.79/SF).

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The author:  Kathy Krach is a commercial sales and leasing agent with MacRo.

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