Prologis-KTR Deal Underlines Industrial Strength

By Scott Baltic, Contributing Editor

Hamid Moghadam, Prologis

The planned purchase of the real estate assets and operating platform of KTR Capital Partners and its affiliates for $5.9 billion by a joint venture of Prologis Inc. and Norges Bank Investment Management is a neon sign of bullishness in the industrial real estate sector, according to experts who spoke with Commercial Property Executive.

The acquisition, announced over the weekend, will encompass a 60 million-square-foot operating portfolio owned by KTR’s three co-investment funds and comprising 322 properties, as well as 3.6 million square feet of developments underway and a land bank with a potential build-out of 6.8 million square feet.

Part of the portfolio’s appeal for Prologis reportedly is its approximately 95 percent overlap with the buyer’s existing U.S. portfolio, which is heavily represented in Southern California, New Jersey, Chicago, South Florida, Seattle and Dallas.

The portfolio’s average occupancy is 89 percent and the average building age is 18 years, Tracy Ward, Prologis’ senior VP of investor relations &corporate communications, told CPE.

The JV, called Prologis U.S. Logistics Venture, will be owned 55 percent by Prologis and 45 percent by NBIM, which manages the Norwegian Government Pension Fund Global.

“It is rare to have the opportunity to acquire a portfolio of such high-asset quality, customer profile and market composition that is so consistent with our own,” Prologis chairman & CEO Hamid Moghadam said in a release. “I have known KTR’s leadership for 15 years and have always considered them to be astute investors and one of our toughest competitors in the U.S.”

The deal is “a significant statement about the strength of both organizations,” about KTR’s success with its funds, and about Prologis’ long-term confidence in industrial space as an asset class, John Morris, Rosemont, Ill.–based executive managing director and Head of Industrial Services, Americas for Cushman & Wakefield, told CPE.

The sector shows good prospects for development and absorption, even if the economy were to turn south again, he added.

“The acquisition … is indicative of the current trend of institutionalization in the industrial real estate segment, as an expanding investor pool seeks to capitalize on the continued strength and growth of the current U.S. economic expansion,” John Huguenard, international director with JLL’s Capital Markets and leader of the firm’s Industrial Capital Markets, told Commercial Property Executive.

“As funds that were able to aggregate at scale in primary and supporting markets during the global financial crisis now shop possible exit strategies, investors attracted to the tight fundamentals and increasing rental growth in the industrial segment are putting large premiums on portfolios that offer quality properties and scalability in key industrial markets, particularly assets that support high-growth industries like e-commerce,” he continued.

“The fact that new deliveries of industrial space hit 142.1 million square feet in 2014, well under the 2004–08 average of 184.0 million square feet, coupled with 19 straight quarters of positive net absorption, indicate that the current supply of industrial space is still extremely favorable for ownership, and investors are recognizing the growth potential of rents for industrial space,” Huguenard concluded.

Total consideration for the transaction, which is expected to close within 30 to 60 days, includes the assumption of about $700 million of secured mortgage debt and the issuance to KTR of up to $230 million (less assumed liabilities) of common limited partnership units in Prologis L.P.