FORECAST BREAKFAST SE WI INDUSTRIAL REAL ESTATE MARKET Thursday, January 14, 2016 Presentation by: Brian S. Parrish, MBA President & CEO
PARADIGM Real Estate LLC
www.PARADIGMre.com
Agenda • • • • • • • • • •
Factors Affecting Manufacturers Vacancy & Absorption Deal Velocity Investment Portfolio Sale Bonanza New Construction Self Storage Building Boom Interesting Leases Interesting Sales SE WI Industrial Real Estate Forecast
PARADIGM Real Estate LLC www.paradigmre.com
U.S. added 292,000 jobs in December National unemployment rate holds steady at 5 percent 2015 was an auto sales record: 17.47mm vehicles Highly active industrial real estate market – local and national
ISM Milwaukee PMI ISM National PMI
Ended at 48.53% Ended at 48.20%
FACTORS AFFECTING MANUFACTURERS
PARADIGM Real Estate LLC www.paradigmre.com
THE FACTOR
2015
2016
Skilled labor shortage Unemployment
Severe issue 5%(national)/4.4%(metro)
Shortages to continue Ranked 32nd in job creation
Housing Market
Strong 3rd healthiest in nation
To remain strong
Construction prices
Increased, shortages
Still high
Commodities (excluding construction)
Plummeted Oil at 6 year low
To remain low Stronger dollar expected
Interest rates
No change Fed funds from .25-.5%
2 - 4 more increases Min. effect on consumer rates
Elections
Non-factor
Non-factor
Market Liquidity
Abundant SBA, conventional, creative
Still abundant - more players
PARADIGM Real Estate LLC www.paradigmre.com
Total Vacancy & Net Absorption 4,000,000
5.2%
3,652,378
3,500,000
5.0%
5.0%
3,000,000 4.8% 2,500,000
4.7% 2,000,000
1,500,000
4.5%
4.6%
4.6%
1,782,074 4.4%
1,000,000
4.4%
1,053,297 653,503
500,000
651,398
-
4.2%
4.0% 2014 Q4
Source: Xceligent PARADIGM Real Estate LLC www.paradigmre.com
2015 Q1
2015 Q2
2015 Q3
2015 Q4
2015 in a Nutshell Vacancy
rate dropped from 5.00% (Q4 2014) to
4.6% (Q4 2015) Vacancy
rate hit 9.75% in 2008
Walworth
County had lowest vacancy at 1.4% (Q4 2015), followed by Sheboygan at 3.1%
Racine
County had highest vacancy at 6.5%, followed by Ozaukee County at 6.1%
Almost
6 years of positive absorption
2015
Absorption 5,406,382 SF
Milwaukee PARADIGM Real Estate LLC www.paradigmre.com
& Kenosha Counties 87.6% Source: Xceligent
DEAL VELOCITY Year 2009 2010 2011 2012 2013 2014 2015
Avg Age # of Sales Avg $/SF 28 77 $41.98 35 97 $35.39 33 163 $30.59 39 269 $32.24 40 215 $29.75 40 300 $33.01 42 264 $35.66
• Prices of existing buildings nearly half new construction. • 8% increase in $/SF • 12% decrease in # sales (likely to be breakeven) Source: Xceligent Data, PARADIGM analysis PARADIGM Real Estate LLC www.paradigmre.com
INVESTMENT VOLUME •
Higher demand, lower supply
•
2015 saw $420.3B investment sales
•
2016 expecting $500B investment sales
•
8-10% investment buyers over last 4 years were international Source: NAR
PARADIGM Real Estate LLC www.paradigmre.com
CAP RATES •
•
INVESTMENT
National average – Warehouse
Flex/R&D
Average
5.48%
7.15%
Range
3.00 – 7.00%
5.75% - 9.00%
SE WI Cap Rates have ranges from •
6.5% - 7.5% for Class A
•
8 .0 – 9.0% for Class B
Source: PwC Q4 2015
•
Industrial cap rates are almost fully compressed
•
Cap Correlation to interest rates vs. supply/demand
PARADIGM Real Estate LLC www.paradigmre.com
PORTFOLIO SALE BONANZA CenterPoint sold CrossLake Airport Business Park (formerly ACE) to Building ABC Investor LLC for $27mm, or $24.95/SF Westmount Realty Capital LLC purchased CenterPoint Properties Portfolio • Feb. 2015 • 1.74 Million SF (10 Buildings) 80% occupied • $61,483,556 • $35.33/FT CenterPoint has completed exit of multi-tenant flex portfolios.
PARADIGM Real Estate LLC www.paradigmre.com
Zilber purchased six industrial buildings from CenterPoint, with a total of 206,000 SF on Howell Ave. for $2.55 million, or $12.38/Sq. Ft. Leased, added value, and FOR SALE! Expect at least 2 more large portfolio sales in 2016 totaling 800,000 SF+ LOOK FOR SPIN-OFFS
NEW CONSTRUCTION: 2015 vs. 2016 2015 Market Deliveries Size (SF)
Market
Milwaukee
388,274
Kenosha
1,836,052
Racine
132,000
Washington
285,063
Waukesha
100,000
Grand Total
2,741,389
Source: Xceligent
PARADIGM Real Estate LLC www.paradigmre.com
2016 Market Deliveries Property Name
Size (SF)
Enterprise Business Park Bldg III Washington Ave and Frontage Rd Gateway Business Park Manhard Dr & Lilly Rd West Allis Industrial Showroom Old Orchard Road (Hwy 145) Oberlin Filter Company Delaney V ENR Group Custom Logistics RidgeView Business Center VII Freistadt Rd & Maple Rd Weimer Building Grand Total
375,000 155,844 82,500 146,423 130,000 158,525 90,000 80,000 110,000 50,000 113,000 32,000 68,000 1,591,292
NEW CONSTRUCTION
PARADIGM Real Estate LLC www.paradigmre.com
•
Shortage of land, materials, labor
•
Prices are increasing
•
1.6mm Sq. Ft. under construction for 2016
•
Ideal lending environment for manufacturers
SELF STORAGE BUILDING BOOM
PARADIGM Real Estate www.PARADIGMre.com
Developer Self Storage of Brookfield
Acquisition Delivery Year Year 2014 2015
City Brookfield
Self Storage of Brookfield Metro Storage EZ Storage Master EZ Birchwood Vault Humboldt Storage Highland Development Highland Development
2014 2014 2015 2014 2015 2015 2015 2014 2015 2015
2015 2015 2016 2015 2016 2015 2016 2016 2016 2016
Brookfield Brown Deer Cudahy Franklin Greenfield Menomonee Falls Menomonee Falls Milwaukee Milwaukee Milwaukee
Milwaukee Storage Partners Storage Master Storage Master Vault U-haul WI SS WA LLC
2015 2015 2014 2014 2015 2014
2016 2016 2015 2015 2016 2015
Milwaukee Milwaukee Muskego Waukesha Wauwatosa West Allis
Acquisiton $/SF
350 525 400 600 400 300 350 367 800 450 750 600 350 450 2,000 750
$
17.20
$
41.66
$ $ $
2.78 20.40 32.37
45,000 85,291 49,200 12,000 37,000 48,000 50,100 64,440 125,000 40,160
$ $ $ $ $ $
24.67 9.63 20.96 25.53 13.29 16.13
124,245 57,121 57,234 80,647 394,840 123,986
$
20.42
1,487,264
SELF STORAGE BUILDING BOOM PARADIGM Real Estate LLC www.paradigmre.com
Size (SF) 93,000
Units (est.) 500
9,942
INTERESTING LEASES •
QuadGraphics leased 188,210 SF at the American facility on Duplainville, Pewaukee
•
Briggs and Stratton leased 235,600 SF at 4355 N. Richards St, Milwaukee
•
Beck Aluminum leased 193,605 SF at 7505 Durand Ave, Mount Pleasant
PARADIGM Real Estate LLC www.paradigmre.com
Additional Quad warehouse
INTERESTING LEASES •
Gardner Pet Group leased 160,000 SF at 2845 Wingate St., West Bend
•
OTR Wheel & Engineering Inc. leased 71,778 SF at Brown Deer Business Park Bldg 5, Brown Deer
•
Seko World Wide leased 50,564 SF at Liberty Property Trust building in Oak Creek
PARADIGM Real Estate LLC www.paradigmre.com
Gardner facility, West Bend
INTERESTING SALES • Wangard Partners purchased beverage facility in Wauwatosa • Aug. 2015 • 196,921 SF • $4,800,000 • $24.37/SF • R2 Companies and Polsky Holdings purchased US Postal Service building from Enco Realty • Nov. 2015 • 1,105,000 SF • $13,100,000 • $11.85/SF PARADIGM Real Estate LLC www.paradigmre.com
INTERESTING SALES
113th St., Wauwatosa
INTERESTING SALES • Redwall Screen Printing • 7655 S. 6th St., Oak Creek • Feb. 2015 • 88,820 SF • $1,975,000 • $22.23/SF • Hilmot • 11925 W. Carmen Ave, Milwaukee • May 2015 • 100,000 SF • $2,800,000 • $28.00/SF • Indiana Investment LLC (Kreilkamp) • 13300 Whitney Dr. Germantown • Oct. 2015 • 102,400 SF • $3,380,000 • $33.00/SF PARADIGM Real Estate LLC www.paradigmre.com
7655 S 6th, Oak Creek
IREM INDUSTRIAL REAL ESTATE FORECAST
2016 Industrial Real Estate Forecast • 2016 will be another strong year • Lower vacancy • Slower rate of positive absorption • Lackluster but healthy leasing market • Cap rates to remain stable at current lows • More sale leaseback investment deals
PARADIGM Real Estate LLC www.paradigmre.com
2016 Industrial Real Estate Forecast • New construction will become even more prevalent • Uncertainty due to elections, interest rates, and global matters • Swinging past equilibrium in the SE WI industrial RE market PARADIGM Real Estate LLC www.paradigmre.com
Brian S. Parrish, MBA President & CEO PARADIGM Real Estate LLC www.PARADIGMre.com (262) 717-5151
THANK YOU
