The Value of Land

Much has been made of the incredible demand for industrial property over the past decade, which has led vacancy rates across major industrial markets to decline to historically low levels, in many cases sub 1% vacancy (see Blog Post 1 – Industrial Demand Takes Off). A corollary to this leasing phenomenon has been the insatiable appetite by Third Party Logistics (3PL) users and major E-Commerce retailers to lease or acquire as much industrial zoned land in prime port and urban infill locations for any combination of outdoor storage or parking uses.

Gentrification is typically solely reserved to describe displacement of people within residential neighborhoods. But the G-Word can also explain what is happening in the industrial market for all types of industrial space. Increasingly there is massive gentrification of industrial land by those who are willing to pay the most and force displacement of those who cannot compete on price.

Not sexy real estate, but the Port is an integrated and mission critical piece of the North American supply chain.

Let’s take an example of the most expensive industrial land on the East Coast which is the Port of New York / New Jersey. Running north-south from Route 9 to I-78 along the Newark Bay, Doremus Avenue in Newark is a major thoroughfare with land parcels on either side in proximity to NYC, the Port and Newark Airport. Unless you are truck driver, or a real estate developer, you likely have never driven Doremus nor ever should. But this little enclave has become a hot bed of industrial leasing and sales activity by the biggest and most sophisticated brokers and institutional investors with valuations running as high as $10M per acre or $40,000 per acre per month in rent. This is ground zero, the Madison Avenue of industrial logistics real estate, and any and all users transiting goods from Port Newark into Manhattan want to be here.  

Which means that a lot of trucking company users who have historically been in this port-adjacent location are being priced out and displaced. Where does a trucking company go? Linden or Elizabeth are also facing historical price pressures with a recent comp off Exit 13 exceeding $8M per acre. South Plainfield or Piscataway along the I-287? Out the I-280 and past wealthy enclaves to Morris County or way down the Turnpike to Edison? Or beyond.

Wherever these trucking companies head towards they are meeting the same issues of limited supply and hyper-competitive demand. Entrepreneurial users, brokers and owners are creatively unlocking excess land opportunities across Bergen, Passaic, Essex, Middlesex and other close-to-port counties at previously unthinkable land metrics (20 to 30k per acre / month). As such, if you own a 100,000 SF building on a 10-acre parcel and the building occupants do not control the excess parking, with ~3 acres of excess land, the owner is now sitting on a gold mine that could produce up to $1M in additional net operating income. That is value generation on a massive scale.

Industrial Outdoor Storage (IOS) Properties

Many investors are forgoing the need to buy an existing warehouse or flex asset and instead focusing directly on a new sub asset class called IOS. These are typically land parcels zoned for heavy industrial uses but currently leased to trucking operators, equipment rental companies, general contractors on a short-term basis.

Savvy investors are scoping out larger parcels in Pennsylvania, South Jersey, Delaware or up the Hudson River and then cater to users desperate for lower cost alternatives. This IOS market is attracting serious institutional capital and slowly Lenders are building confidence to underwrite land rental income as durable, recurring cash flow.

The industrial market is living in unprecedented times and the opportunities abound. Everyone has a different thesis on how to profit by the structural shift driven by E-Commerce as well as the deglobalization trend of supply chains driven at first by a pandemic and further rattled the resurgence of the Cold War. Stay tuned as Snowball Developments continues to build on its covered land investment thesis with additional acquisitions throughout the Tri-State region.