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Industrial Portfolios Attracting Big Spenders

Fortress, Cardinal Sell their Goodyear Portfolio to American Realty Capital
January 29, 2014
In the latest of a string of major sales involving industrial property, American Realty Capital Properties agreed to pay just shy of $220 million or about $46.80 per square foot to Cardinal Industrial and its partner Fortress Investment Group LLC, to buy a six-building, 4.7 million-square-foot distribution center portfolio leased to Goodyear Tire & Rubber Co.

The sale also continues a portfolio exit strategy Los Angeles-based Cardinal Industrial and Fortress began in the middle of 2012, with the bulk of those properties being acquired by ARCP. From October 2013 through this past week, American Realty Capital Properties through wholly owned subsidiaries of its operating partnership has acquired 120 properties from affiliates of funds managed by Fortress Investment Group. The Goodyear portfolio sale was included as part of that $1 billion purchase agreement.

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Cardinal Industrial once owned a portfolio of mostly single-tenant industrial warehouse assets located throughout the United States containing 14 million square feet, valued in excess of $600 million.

George Hicker, president and founder of Cardinal Industrial, said the partnership decided to put the portfolio on the market in mid-2012 due to a variety of reasons, including the recent death of a key partner who had helped to assemble the portfolio, the uncertainty ahead of the then-approaching preseidential election and the prospect capital gains taxes increases and declining cap rates.

At the same time, Fortress was starting the process of exiting from some of its early post Great Recession property purchases. In the firm’s third quarter earnings conference call this past October, Peter Lionel Briger, co-chair, president, principal and head of Fortress’ credit and real estate business, said, “We feel like it's a mediocre credit market for making new investments, but a very good market for realizing on investments. And we will try to create realizations where we can get paid for them in our portfolio."

Last fall, Fortress also started cashing out on some of its $6.89 billion investment bet on the senior housing business at the last height of the market in early 2007. In November, it cut two separate deals to sell a combined 77 communities for $1.5 billion.

Cardinal still owns approximately 4.9 million square feet of industrial property in 14 buildings with an average lease-term of four years.

Hicker said he believes it would be harder to find a buyer for the remainder of its portfolio since it has average lease terms of just four years. Hence, he said the company is seeking a joint venture partner to own 50% to 80% of the properties. Cardinal would hang on to the remaining 20% to 50%. The intent would then be to payoff the debt as it comes due on each asset, and would end owning the properties free and clear.

Hicker estimates the value of the 14 remaining assets at $215 million; and some of the tenants include Exel, Office Depot, Amcor, Cott Beverage and Mars.

More Big Money Delving Into Industrial Real Estate

Big buyers of major industrial portfolio buys have been easier to come by lately. This week, industry newsletter Real Estate Alert reported that Blackstone has agreed to pay GE Capital roughly $550 million for a 9.6 million-square-foot industrial portfolio, capping a long marketing campaign. The portfolio represents nearly all of GE’s industrial holdings with about half of the space located in Texas. Eastdil Secured is brokering the sale.

It’s the latest big industrial acquisition for Blackstone, which stormed into the sector a few years ago and has become a major force. For GE, the deal fits with its long-range strategy of reducing its property holdings as it shifts its real estate focus to lending, Real Estate Alert reported.

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