By John Wilkens |
April 04, 2022
The current growth in e-commerce is a driving factor in the industrial real estate market. These buildings are crucial for food and pharmaceuticals, which have federally regulated requirements for storage.
The cold storage sector of real estate was already booming before 2020, but technological advancements and changes to online buying behavior, hastened by COVID-19, have caused the industry to see a massive increase in demand.
The NOYACK Logistics Income (NLI) real estate investment trust (REIT) offers accredited investors the opportunity to obtain stable returns and protection from inflation by investing in cold storage.
The current growth in e-commerce is a driving factor in the industrial real estate market. Builders are constructing warehouses, including those needed to maintain the supply chain of products requiring cold storage but demand is outstripping supply in key areas. More and more, it’s important for storage to be close to consumers. People are buying more goods that need cold storage and they don’t want to wait. Proximity is becoming more critical
These buildings are crucial for food and pharmaceuticals, which have federally regulated requirements for storage.
Compounding the demand-supply imbalance, existing cold storage buildings are becoming antiquated. CBRE reports that the average age of these facilities is 34 years. The need to upgrade these facilities quickly favors the speculative construction of cold buildings.
The global market in cold-storage construction was worth $7 billion in 2019, which Emergen Research predicts will rise to $18.6 billion by 2027. A 2020 study by CBRE shows the demand for cold storage in the U.S. will grow by 100 million square feet by 2025, although only five million square feet are currently under construction. Cold storage thus has enormous potential for investors.
The factors driving this growth include the increase in online grocery sales and subscription meal services, especially for fresh and perishable food. Only five percent of groceries were purchased online in 2019, according to Bain & Co. However, this figure doubled to 10 percent in 2020. The management consulting firm also predicts this figure could increase by 12 percent by 2025. [Same – move up?]
The rising use of pharmaceutical products requiring specialized storage is also a major contributor towards the growth of cold storage. Moderna’s vaccine for COVID-19 must be stored at -20 degrees Celsius, and Pfizer’s injection requires storage at -70 Celsius. However, most hospitals only have refrigeration capability in the range of -2 to -8 degrees Celsius, which causes the vaccine to spoil after five days. This limitation creates real challenges for the distribution and storage of drugs that must be stored at very low temperatures.
Investors have already noticed the difference between the demand and available supply for cold storage in the U.S since the pandemic.
The capital currently invested in cold buildings comes primarily from private investors, who accounted for about 80 percent of the buyer pool in 2021. However, REITs and other institutions may begin investing in cold storage more heavily as the capitalization rates on these investments continue to shrink.
Capital markets are more focused on cold storage than ever before, although investors are mostly interested in buildings in core markets with long-term tenants. Relatively few cold storage buildings meet these criteria, but they still provide a significantly higher yield over dry warehouses with similar tenant credit profiles and lease terms.
NOYACK believes that these assets are undervalued in comparison to e-commerce’s market maturity. This market has grown by 140 percent over the last five years, reaching a current value of $2.4 trillion. However, the real estate infrastructure available to meet this demand has only increased by 25 percent. This difference between supply and demand will drive revenue from these assets for the next decade, and likely beyond.
NLI is the first investment offering from NOYACK Capital, a rapidly-growing alternative investment platform. It’s designed for yield-driven investors looking for optimal wealth preservation and has a diversified portfolio of commercial real estate properties in North America’s supply chain and logistics infrastructure. NLI’s target assets include cold storage, dry warehouses, healthcare buildings, and mobility hubs.
NOYACK sources assets through an umbrella partnership real estate investment trust (UPREIT), allowing real estate owners to contribute their property to a REIT. We use custom algorithms like MarketQuotient™ and PropertyQuotient™ to score and rank assets. We also expand our portfolio by making commitments to large developers in exchange for discounted pricing. In addition, NOYACK repurposes assets in response to changes in supply chain trends, improving revenue and yield.
Distributions from NLI are protected from depreciation, resulting in a cash flow that’s nearly tax-free. Furthermore, our buy-and-hold strategy allows investors to defer their property gains. Our portfolio of logistics assets is also exceptionally stable without sacrificing upside.
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