Industrial Real Estate Prices are Rising in Northeast Ohio
By Stan Bullard, Crain's
If you believe some industrial investment property sales recently are eye-popping, you'd be correct.
The most recent case is the sale of the Amazon delivery center in Bedford Heights, which was sold to an affiliate of the Seoul-based Mirae Asset Global Management financial firm for $46.8 million.
That works out to $324 a square foot for the building that Scannell Development Corp. of Indianapolis completed last year and leased to the Seattle-based online retailer. It's striking to watch dozens of Amazon neighborhood delivery trucks queued for loading.
The other eye-popping sale came in 2020 as Westminster Capital, a Chicago-based real estate developer, sold a new warehouse in Glenwillow for $50 million to Investcorp, a Bahrain-based alternative investment concern.
The sale came after the building was fully leased, again by Amazon. The 434,000-square-foot structure, which was built on speculation, garnered $115 a square foot. That deal marked the first time such an industrial property commanded a price over $100 a square foot in the region.
Terry Coyne, a vice chairman of Newmark who worked on the Bedford Heights sale, characterized both deals as "outliers."
That's because there is a global appetite for assets associated with Amazon operations and reflects the busy national industrial real estate market.
"It's a reflection of macro trends globally, and a micro trend locally due to Amazon," Coyne said.
Due to the specialized nature of the properties, Coyne said, they have a marginal, primarily psychological, impact on the industrial realty market. Similar properties of more than 100,000 square feet don't command so much cash and are more reflective of the regional industrial market.
However, the existence of such industrial sales of leased buildings clears the way for other industrial properties to sell for higher prices.
Alec Pacella, president of the NAI Pleasant Valley brokerage and a frequent writer and lecturer on realty investing for trade groups, likened the situation to how selling expensive luxury cars like Mercedes make the Fords, General Motors, Toyota and others look like bargains.
"It opens the way for a building owner who might have asked $20 a square foot to lease the building to ask $25 to $30 a square foot, and perhaps sell for a higher figure," Pacella said.
The greater factor, multiple industrial brokers agree, is that the industrial market is a seller's market for the first time in many years.
Joe Barna, a founding principal of the Cushman & Wakefield Cresco realty brokerage, said lack of inventory is allowing longtime building owners to get higher lease rates, and with them, somewhat higher sale prices.
Existing buildings, Barna said, look like bargains compared to what the new properties command and are less expensive than building new ones. Amazon also wants fully air-conditioned buildings with lots of extra parking, which also factors into higher prices for such structures.
Barna, who has been active selling industrial real estate since 1987, said that for many years, leasing prices here were flat. That started to change about five years ago.
"Landlords now are getting 1.5% to 3% annual increases in industrial lease rates," Barna said. "For years in other markets, landlords were getting annual bumps in rents. It's only recently that they've been able to do that."
Barna points to a beneficial effect from the high-priced, though specialized, Amazon-linked sale prices.
"This is opening eyes of investors in other places to Cleveland," Barna said. "They are used to paying more for land or buildings in New York or San Francisco. Cleveland looks like a bargain."
However, insiders say renovated or new properties with a built-in, long-term rent role catch higher prices than they did when raw land or an existing empty building is purchased by a real estate developer who may have to do substantial work over years to get older properties re-tenanted.
"A lot of landlords who have stuck it out in Cleveland can now enjoy a favorable return. They deserve it," Barna said.
The Amazon-linked investment deals have had a beneficial impact on all of the region, according to Coyne.
"There's no doubt there is more liquidity in this market than there has been," he said.