Bridge Development And PGIM Forge $150M Cold Storage Partnership
The growth of online grocery sales is fueling demand for state-of-the-art cold storage buildings across the U.S., and that inevitably has drawn the attention of institutional investors, but historically many avoid owning these highly complex facilities, unless they can pair up with a knowledgeable operator.
Global real estate investor PGIM Real Estate just solved that problem by forging a $150M joint venture with Chicago-based Bridge Development Partners, an experienced developer of cold storage properties. The partners will target the development or acquisition of $400M in cold storage assets across the U.S, and as part of the agreement, Bridge recapitalized its Bridge Point Northlake cold storage facility in west suburban Northlake with PGIM.
Bridge Point Northlake, a former Dominick's Safeway grocery storage facility acquired by Bridge in 2014 and redeveloped into modern freezer storage and produce cooler facilities, was sold in October for $82.7M, according to commercial real estate site Reonomy.
CBRE National Partners’ Michael Caprile, Zach Graham and Ryan Bain brokered the sale to the joint venture. That transaction was led by PGIM Real Estate Executive Directors Rush Shah and Steve Oliveira, and Bridge Development Partners Senior Vice President of Cold Storage Brian Niven.
Bridge Development officials said the new joint venture will both develop new Class-A cold storage facilities and seek value-add returns by acquiring and redeveloping existing Class-A and Class-B buildings.
“Bridge Point Northlake provides both Bridge and PGIM Real Estate with a strong seed asset that will serve as the foundation on which we build our national cold storage portfolio,” Niven said. “This program is paramount as we see populations across the U.S. surging and the demand for fast, fresh product increasing.”
By jumping into cold storage, PGIM is joining a select group of investors.
“The universe of investors interested in cold storage assets is typically low — less than 10% of the broader industrial and logistics buyer pool,” according to a new CBRE study.
Most are scared off by the need to maintain complex equipment and features, including refrigeration systems, insulated metal panels and under-floor heating. That is starting to change, CBRE added, as several significant investors, including Bay Grove Capital, Blackstone and New Mountain Capital, recently became active in the sector.
Cold storage sales totaled about $1.6B in the last five years, growing an average of 6.2% each year and hitting $423M in 2018, according to CBRE, citing data from Real Capital Analytics.
Still, the properties’ complexity also means creating new product is difficult, leading to a shortage of available assets and limiting investment opportunities. CBRE estimates the U.S. cold storage portfolio totals about 215M SF, with only 2.5M SF coming online in the near term, mostly through build-to-suits developed by owner-operators.
Developers will need to add up to 100M SF through 2022 to meet the demand created by growing online grocery sales, CBRE forecasts, so investors that do jump into the sector should see high occupancy rates and strong rent growth.
“As the online food delivery market in the U.S. continues to grow, the need for cold storage industrial space is skyrocketing and we expect the pace of demand to continue on that trajectory,” PGIM Real Estate Managing Director and Senior Portfolio Manager Darin Bright said.
