Investors Buy Up
Industrial Real Estate

Real-estate investors are stepping up their purchases of bulk warehouses and other kinds of industrial properties amid better leasing conditions as well as expectations for future growth because of booming global trade.

Investors have spent $10.84 billion purchasing industrial real estate this year as of June 15, 45% more than they did during the same period last year, according to Real Capital Analytics Inc., a New York-based real-estate research firm. Transaction volume will soon top $12 billion, with a deal expected to be announced today. In 2004, industrial real- estate transaction volume totaled a record $20.85 billion, and 2005 sales could well set another record.

Today, RREEF, an arm of Deutsche Bank's Deutsche Asset Management, is expected to announce the acquisition of an industrial portfolio totaling about 23 million square feet in 18 U.S. markets for $1.3 billion.

The transaction comes on the heels of another big industrial real-estate deal earlier this month. Real-estate investment trust ProLogis bought Catellus, another industrial REIT, for $3.6 billion in the largest real-estate deal of the year.

ING Clarion Partners, a U.S. subsidiary of ING Real Estate, a global real-estate investment firm owned by global financial services firm ING Groep NV of the Netherlands, also has been busy buying industrial real estate. In April, it bought a portfolio of 7.1 million square feet of industrial properties in Seattle, Portland, Ore., Northern California, San Diego, Phoenix and Dallas for about $474 million. Since 2004, ING Clarion has bought nearly 250 industrial properties with a total purchase price of $1.6 billion.

"There's definitely demand for industrial real estate, especially institutional-grade real estate," says Dan Fasulo, director of market analysis at Real Capital Analytics. One reason, he says: "an improving economy generates more demand for industrial real estate on the leasing side."

What's more, for investors, there are higher rates of return available in industrial real estate than the other core property types, Mr. Fasulo says. As of the beginning of June, the average rate of return on industrial properties was 7.9%, compared with 7.6% for office, 7.5% for retail, and 6.5% for apartments, according to Real Capital Analytics.

Deutsche Asset Management's RREEF, a real-estate investment manager, is buying the real-estate portfolio from a joint venture between LaSalle Investment Management Inc. and the California Public Employees' Retirement System known as CalEast Industrial Investors LLC, which itself acquired 90 distribution properties at 25 airports across the U.S. and Canada in May for about $800 million.

Russ Blackwell, chief executive of CalEast Industrial Investors and managing director of LaSalle Investment Management, said the venture is planning on redeploying the sale proceeds into development activities not only in the U.S. but in Mexico and Canada. "We'll be looking to focus more on value-added plays and to augment our holdings along the global supply chain," he said.

Officials from RREEF didn't return calls seeking comment.

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