Zenith IOS and JP Morgan have announced a new joint venture dedicated to building a national industrial outdoor storage (IOS) platform.
The platform will create an institutional portfolio of IOS assets positioned to meet the growing user demand across various supply chain networks. The joint venture is expected to have closed over $125 million of acquisitions by the end of February.
IOS properties are typically low-coverage industrial sites used by owner-operators and tenants needing outdoor space for vehicle parking, container storage, construction supplies, machinery, materials storage and other uses. The joint venture will target urban infill industrial locations in major cities and high growth areas.
“As the available supply of high-quality IOS sites continues to tighten due to various different forces, the fundamental growth in e-commerce and distribution, construction, and up-zoning, the macro dynamics support a high-yielding strategy with an increasingly strong tenant credit profile,” Ben Atkins, Founder and CEO, said in prepared remarks.
“We see IOS rapidly emerging as a new distinct subset of the industrial asset class, and our goal is to help define this space through the creation of an institutionally owned and operated investment company.”
Expect More Capital Flowing to Sector
Zach Harris, director in Stan Johnson Company’s Tulsa, Okla., headquarters tells GlobeSt.com that he continues to see more capital flowing into the IOS sector, from both private and institutional investors, and this new joint venture between JP Morgan and Zenith IOS is “big news” for the sector.
“The growth and popularity in the IOS sector aren’t just smoke and mirrors,” Harris said. “IOS properties serve a vital purpose in the supply chain, and that will only become more heightened moving forward. There are obviously other institutional-backed joint ventures in the space already, but very few of this size and scope.
“Given the fragmented nature of owners and users of IOS properties, there are real opportunities for portfolio aggregation by institutional capital. Not to mention the more attractive pricing in comparison to more traditional Class A industrial product.”
Ryan Kavanaugh, Vice President, Real Estate Americas at J.P. Morgan Asset Management, said prepared remarks that the current supply and demand imbalance for industrial outdoor storage will be exacerbated by the increasing need for these mission-critical properties that support e-commerce, transportation, logistics, infrastructure and construction.
SoCal an Attractive Market
Uma Pattarkine, Global ESG Lead & Investment Strategy Senior Analyst at CenterSquare Investment Management, tells GlobeSt.com that “Historically we’ve seen ~50% site coverage on industrial land and there’s more demand now for a few specific reasons. We’re seeing that happen really acutely in areas like Southern California—close to ports where there’s such a backlog and you just need to get things off ships and have a place to store them until they can move through the supply chain.
“In SoCal, you can acquire outdoor storage at mid-4% going in yields, which is anywhere between 50bps to 150bps wide of where you’d be able to acquire traditional in the same market and then you can stabilize that into the 6% yield range so it can be an attractive way to deploy capital into an industrial-adjacent property type that’s benefitting from a lot of the same types of demand tailwinds that are benefitting industrial real estate.”
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