In January, Amazon announced its shortlist of 20 markets that
made the first cut in its site selection process for a second headquarters. For officials from the cities on the list, the big reveal was
a moment to celebrate and then get ready for some bruising work
ahead as they continue to compete for the prize. The list, however, was also of great interest to another group: commercial real
estate investors that are becoming increasingly interested in and
willing to invest in secondary cities.
“If you kick out the gateway cities, you have an interesting list
of second-tier markets,” says Scott Crowe, chief investment strate-
gist of CenterSquare. “It’s interesting because Amazon showed its
hand in terms of what tenants look for and that’s always what we
are trying to find out—where the tenants want to be.”
The list is “very consistent with our view of the world,” he notes.
“We have a lot of investment in these cities and in other places we
have considered making an investment.”
Is Crowe looking at any new cities on the list? Let’s put it this way,
he says: “We’re looking at this list to see if we missed anything.”
Experts in the space might argue that lists of secondary mar-
kets attractive to CRE investors already exist, but Crowe points
out that out of 50 interesting submarkets in the US it isn’t possible
to invest in all of them. What Amazon has done is cull those 50
sites to a manageable list of 20.
Jeff Holzmann, managing director at iintoo, suggests that
Amazon will not want to enter a market with a Class Bravo airspace,
a term used by the Federal Aviation Administration for the nation’s
busiest airports. The reason is obvious if you’ve ever flown into one
of these airports, Holzmann continues: flights are late much of the
time, the airports are congested even when they aren’t and highway
traffic in and out can be a nightmare. “Amazon, in my opinion, will
not want to move into an area where their employees, their customers and suppliers have a hard time navigating.”—Erika Morphy
Debt Is ‘Superfood’ for Portfolios
Nutrition science has identified “superfoods” and so, apparently, has commercial real estate. It’s the term that TH Real
Estate uses to describe CRE debt, one of four sectors the firm
believes could provide opportunities for investors in 2018.
“Commercial real estate debt enhances portfolio performance
due to its modest correlation and higher risk-adjusted returns, relative to most other asset classes,” according to TH Real Estate’s
Think US Cities: 2018 Outlook report. “We believe it is the superfood
every portfolio should consider adding.”
What Amazon’s Shortlist Tells CRE Investors
UP Front A comprehensive look at what’s trending in the world of commercial real estate
Origin Investments recently acquired Ellsworth, a three-build-ing, 90,817-square-foot creative, loft-style office complex at 1510
Ellsworth Industrial Blvd. in Atlanta., from Stream Realty
Partners. The $22.9-million transaction was brokered by
Kennedy Hicks of Eastdil Secured.
This deal marks the second time in less than nine months
that Origin has acquired a creative, loft style complex in
Atlanta. “Through our current ownership in the dynamic West
Midtown submarket, we have been able to observe the substan-
tial tenant demand that exists for unique space environments
in assets like Ellsworth,” relates David Welk, managing director
of acquisitions at Origin.
Of the three buildings that make up Ellsworth Lofts, Buildings
One and Two are 31,340 and 49,637 square feet, respectively. The
third building is a 9,840-square-foot build-to-suit restaurant and
entertainment property that was completed in the first quarter of
2017 for Bacchanalia and Star Provisions Market & Café. The
complex is 70% leased.
The market for loft office space has grown considerably over
the last number of years, and absorption of space has occurred at
unprecedented levels. Despite its growth, creative loft office space
remains a small fraction of Atlanta’s total office market at four million square feet, or 1.3%, of the total market, according to Origin.
Over the past two years, this segment has completed a dramatic
portion of the absorption relative to its size. In 2015, Origin
reports, loft absorption as a percent of the market total was 5.6%.
That’s three times its market share. In 2016, that absorption grew
to 12.2%, or seven times market share.
This past April, a partnership of Origin and Atlanta-based
Urban Realty Partners acquired Puritan Mill, a two-building,
83,000-square-foot asset located at 916-950 Joseph E. Lowery
Boulevard in the West Midtown submarket. Puritan Mill is currently 100% leased and plans are being finalized for the conversion of an existing 18,000-square-foot industrial building in to
additional loft office space.—Jennifer LeClaire
Atlanta Loft Office Space Remains a Good Bet
BEHIND THE DEAL
1510 Ellsworth Industrial Blvd.