VOL. 127 | NO. 133 | Tuesday, July 10, 2012
Firms Make Investments in Memphis Distribution
By Sarah Baker
In the past month, a pair of out-of-town firms have scooped up local distribution warehouses, growing its Memphis industrial real estate portfolio and planning for more.
Montreal-based Olymbec USA LLC recently closed on its $1.5 million purchase of 3615 Lamar Ave. from an entity affiliated with Miami-based loan servicer LNR Partners LLC.
The Class C, 157,000-square-foot warehouse is Olymbec’s second Memphis acquisition in 18 months, after snatching up the 1.1 million-square-foot Space Center, 3051-3133 Tranquility Drive, for $7.3 million in January 2011.
“We bought (3615 Lamar) for the same reasons we bought Space Center,” said Olymbec principal Richard Stern. “It’s easy for us to continue to grow in the city where we already have a critical mass like we do in Memphis and take advantage of synergies between management, brokerage and our base of tenants that we could start moving around within our portfolio.”
The 3615 Lamar property is 100 percent leased to Builder’s FirstSource Inc. through May 2015, however the tenant vacated the property in 2001 and has subleased the space to two separate tenants. Stern said the property is well-positioned because of its location on Lamar, which is the major freight corridor linking Memphis to Birmingham.
“We’ll get some good visibility when we do have to start leasing it,” Stern said. “It also allows that property to be like a quasi-showroom, and retail, wholesale, outlets, in addition to it just being a warehouse distribution center because of its exposure and visibility on a major trafficked road.”
Olymbec is a family-run, private real estate investment company with a portfolio of more than 200 properties, the majority of which are in Quebec, Canada. The firm specializes in buying distressed properties, renovating and filling the space, and seeking long-term financing.
The firm entered the Memphis market in 2004 with its purchase of a 500,000-square-foot distribution center in Southaven at 8800 Rostin Road. The facility is currently occupied by Terex Corp., a heavy equipment company.
Industrial real estate is at the core of Olymbec’s business, and Stern considers Memphis “the epitome of the industrial warehouse distribution market,” largely due to FedEx Corp.’s world headquarters. The high Canadian dollar also incentivizes Olymbec to invest Canadian dollars into the U.S. market.
“We are happy to continue to invest in Memphis and take advantage of the depressed prices and opportunities,” Stern said. “We believe that you’re past your low point and that the market is improving and will continue to improve.”
Like all investment firms, Olymbec looks at a combination of variables during the due diligence process, but often considers dock doors “overrated.”
Cumberland Materials occupies the 67,000-square-foot portion of 3615 Lamar that has 16-foot ceilings in a lease that is coterminous with Builder’s FirstSource for three more years. Process Systems Inc. occupies the remaining 90,000 square feet, which has 32-foot ceilings, through the end of the year as a staging facility for a job the company is completing at Memphis International Airport.
“We’re not uncomfortable with lower ceiling heights because … the majority of Montreal inventory does have 18 feet or lower,” Stern said. “Our buildings were built during the manufacturing industrial revolution time, as opposed to Memphis, which is really built based on distribution, where ceiling heights are more important than manufacturing purposes. We believe that there are plenty of tenants who could operate certain operations in lower ceiling heights and we’re prepared to discount the ceiling height in rent.”
The majority of the Space Center’s dock doors are 18 feet and Stern said that hasn’t “been a handicap in leasing it.” The South Memphis industrial park was 49 percent occupied when Olymbec acquired it, compared to 60 percent occupancy today.
Olymbec also has another property under contract that’s expected to close in the “near future,” Stern said.
Meanwhile, Pennsylvania-based Exeter Property Group closed in June on its $40 million acquisition of 10 Memphis-area industrial buildings as part of a larger portfolio sale from San Francisco-based ProLogis Inc.
The facilities, a mix of Class A and Class B, total 2 million square feet.
The buildings are Centerpointe No. 1, Olive Branch Distribution Center No. 1, Southpark Building No. 1, Airport Distribution Center (ADC) No. 1, ADC No. 5, ADC No. 6, ADC No. 10, ADC No. 14, ADC No. 20 and ADC No. 21.
Exeter is a real estate private equity firm that acquires, develops and manages industrial and related business park properties in “major markets” throughout the U.S. Kevin Shea, principal/investment officer for Exeter’s Mid-South portfolio in the company’s Louisville, Ky., office, said Exeter is a growing industrial firm and Memphis is “one of the markets that we like.”
“There was a variety of different attributes in this portfolio that we thought made it a compelling acquisition for us,” Shea said. “There were some long-term leases in place with credit tenants like Sears, as well as some buildings with some vacancy, and so we got it at a good price. We believe in the future of the industrial market in Memphis and its growth, so we thought it was the right time to buy.”
Prior to the sale, Exeter owned one property in Memphis as part of its Mid-South portfolio, Southpoint Distribution Park – an 816,400-square-foot big-box warehouse south of Downtown Memphis that it bought in December 2010.