Institutions Under Allocated in Industrial

Michael Boss, Don Ankeny and Alan Carmichael on the Investment Leaders panel.

LOS ANGELES—There is runway left in the industrial cycle, and one clear sign is the under allocation of institutional capital in industrial. “Institutional capital is still under allocated in industrial,” said Don Ankeny, president and CEO of Westcore Properties said on the Investment Leaders panel at RealShare Industrial West last week. “It is hard to find $100 million deals, and when you have $1 billion that needs to get out, it is difficult. So, I think that industrial acquisition is going to stay strong because of the amount of capital that needs to get out.”

Ankeny’s fellow panelists—Michael Boss, director of global real estate at TIAA-CREF, and Alan Carmichael, VP of investments at Alere Property Group—agreed that there is still runway left, despite being cautious about the possibility of downturn. Much of their concern was due to the global economic volatility. Boss called the current climate the seventh inning stretch, but said that if you look only at industrial fundamentals, things are good. “All signs are pretty healthy in the industrial sector,” he said. “All things outside are concerning.”

The panelists also questioned how you compete with a phenomenal year like 2015, where industrial did $56 billion, 20% higher than the previous best year. “We are at double-digit growth,” said Boss. “That is a little concerning because where do you go from there?” Boss added that he thinks the industrial market will move from cap rate appreciation as the key metric to NOI growth. “We think that is where you need to go in this cycle.”

For Carmichael, his firm is going to be less active this year due to the competition, although he was the most bullish on the runway left in the cycle. “We are finding value in over leased markets,” he said on the panel. “We can ride that out for three to four years. That is what we did last year, but the space has gotten a lot more aggressive. We will probably ride out the cash flow this year, but we likely won’t be as active.”

While all of the speakers said that they are sticking to primary markets, “because being pioneering is always scary,” according to Ankeny, they are moving outside of the Los Angeles infill and Inland Empire markets to places like Northern California, where there are more opportunities. “You will probably see people pushing more into Northern California,” said Boss. “In Northern California, you can still get a 4.5% cap and in Seattle, you can get a 4.75-5% cap rate. So, there is more of a spread. It isn’t just Southern California; we are seeing industrial do very well over the last few years.”