Brennan, Arch Street Seed $300M Industrial JV

July 11, 2024

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With a focus on mission-critical facilities, the partnership has acquired a property in metro Knoxville, Tenn.

Brennan Investment Group and Arch Street Capital Advisors have formed their 10th joint venture to acquire a portfolio of industrial properties throughout the U.S., which it will subsequently own and manage. The joint venture will have $300 million in purchasing capacity, according to the partners.

Treves manufacturing facility in Corbin, Ky. — Brennan Investment and Arch Street Capital seeded their 10th joint venture with the acquisition of Treves’ manufacturing facility in Corbin, Ky. *Image courtesy of Brennen Investment Group*

The venture will focus on individual industrial assets that are “mission-critical facilities” to their tenants and leased on a long-term basis, Brennan Chairman & Managing Principal Michael Brennan told Commercial Property Executive.

More specifically, there will be an emphasis on acquiring manufacturing facilities, which is one of Brennan Investment Group’s longstanding investment specialties. The 10th joint venture’s first acquisition, made for an unspecified price, is a 386,700-square-foot manufacturing property in Corbin, Ky., in metro Knoxville, Tenn. The asset is 100 percent leased to a subsidiary of Trèves Group, a global supplier focused on automotive interiors and auto interior acoustics.

“A mission-critical facility is where there’s a substantial investment in equipment and what we call ‘bolt-down’ costs, which makes the likelihood of default very low, and creates a high propensity to renew your lease,” Brennan said. “Obviously, as real estate investors, we love that they stay in the building, and there’s less interruption in income. Generally speaking, that’s better for the investment.”

At one time, manufacturers tended to own their own buildings, but these days companies are more comfortable with long-term leases for manufacturing in the U.S., Brennen told CPE. The leases can be quite long: 25 years sometimes, with an option to lease for another 25 years.

“It’s a wonderful opportunity in a sector that even today remains out of favor,” Brennen says of the partners’ focus on manufacturing. “That’s slowly changing because we’re seeing this influx—a tremendous influx—of manufacturers. Even so, it’s still out of favor, so we can get good prices. But the fundamentals are very, very good.”

A long-term partnership

The partners are building on their nine previous joint ventures, which have acquired over 100 properties totaling nearly 25 million square feet in the single-tenant, net lease sector over the past 12 years. Though with an emphasis on manufacturing, the 10th joint venture will pursue deals for all industrial facility types, also including R&D and distribution, with tenants who are committed to at least a 15-year lease term, and who have made significant investment in the properties.

Macro-economic trends are now working in favor of manufacturing facilities as a real estate investment, according to Brennan, including e-commerce, automation, nearshoring and supply chain repositioning.

Brennan Investment Group is betting on U.S. and near-U.S. manufacturing assets by developing them as well as through acquisition. In March, the company broke ground on a 393,800-square-foot cross-dock building at Pinnacle Business Park in Laredo, Texas, which is slated for a December completion.

Mushrooming manufacturing

Pandemic-related supply chain disruptions and gnawing trade (and other) tensions between China and the U.S. have cast a pall on sprawling global supply chains, according to a report released in February by NAIOP and Newmark. At the same time, the federal government has rolled out sizable new incentives for various industries, especially important tech, to locate new manufacturing facilities in the U.S., and is investing in infrastructure that will support an expansion of the nation’s manufacturing capacity.

Since 2020, there have been over 300 major manufacturing facility announcements in North America, representing about $400 billion in pledged project investment and a minimum of 250 million square feet of new development over the next decade, according to the report, citing Newmark Research data.

The automotive, energy and biomanufacturing sectors are making the largest investments in new manufacturing in the U.S., the report notes, adding that over the next decade, the footprint of U.S. manufacturing space is forecast to expand by 6 percent to 13 percent. Most of the new manufacturing space will be build-to-suit or owner-built, but there will be some demand for spec manufacturing space.

Reshoring is only part of the equation. Manufacturers are also nearshoring their operations, with Mexico being the prime beneficiary of the trend, as well as U.S. industrial markets along the border.