BKM Capital Partners and Kayne Anderson Real Estate have placed what they describe as one of the largest bets in recent years on the shallow bay industrial market with a $1.8 billion portfolio acquisition from an affiliate of Blackstone.
The joint venture bought 51 industrial parks comprising 275 buildings from Link Logistics, according to a statement from the buyers. The properties are located in California, Texas, Georgia and Washington state, and the purchase makes the venture one of the largest owner-operators of multitenant light industrial properties in the United States, the statement said.
Glenn Wylie, executive vice president and head of asset management at Link Logistics, said the firm remains bullish on the shallow bay industrial sector, with solid demand and few developers working on new construction of these smaller properties in prime locations.
"Demand for this product type remains very healthy," Wylie told trade publication Freightwaves last week. "Developing these assets is difficult."
Explosive growth in the data center market has had a spillover effect on the broader industrial market by reducing the supply of industrial buildings, Wylie said. That has resulted in significant leasing volume in Link Logistics' portfolio over the past few quarters.
For the most part, shallow bay industrial properties have stronger fundamentals than other types of industrial buildings, said Juan Arias, national director of U.S. industrial analytics for CoStar. Nationwide availability of shallow bay industrial is 6.4% compared to 10.9% for the broader logistics market, according to CoStar data.
Properties under 150,000 square feet command a 21% rent premium over larger industrial properties, a reflection of the scarcity of these smaller, well-located properties, BKM said in its first-quarter light industrial market update.
Other institutional investors that have recently acquired shallow bay properties include Ares Management, East Capital Partners and a joint venture of Basis Industrial and One Investment Management.
The properties BKM and Kayne Anderson obtained from Link Logistics include a collection of older, well-established buildings that have retained more appeal for small-business tenants.
"Multitenant light industrial remains a highly fragmented segment with compelling fundamentals," Al Rabil, CEO of Boca Raton, Florida-based Kayne Anderson Real Estate, said in the statement. Kayne Anderson did not respond to CoStar News' requests for comment.
BKM plans to renovate many of the buildings, with a task list that includes "exterior upgrades, roof and HVAC work, market-ready improvements for vacant space and selective reconfiguration to reduce office buildout," the Newport Beach, California-based company said in the statement.
After the renovation work is completed, the overall portion of the buildings dedicated to office space will drop from 37% to 33%, BKM said.
The portfolio includes both standalone buildings and industrial parks with multiple buildings, totaling 8.45 million square feet. Buildings range in size from 2,841 square feet to 246,592 square feet, though most are smaller than 100,000 square feet. The total portfolio is about 90% leased with dozens of tenants on the roster.
The portfolio's largest building is 12317 Technology Blvd., located in the McNeil Industrial Park in Austin, Texas. That property is about 70% leased.
The biggest portion of the portfolio is in California, where 193 buildings traded in the Los Angeles, Orange County, Inland Empire, San Jose and East Bay markets. In other states, properties were sold in the Atlanta, Seattle, Dallas-Fort Worth and Austin markets.
For the record
Darla Longo at CBRE represented BKM. Brett Turner, Michael Grossner and Charlie Farmer at BKM led the project for their firm. Truist Securities was the financial adviser to Kayne Anderson.