Copyright 2009, Traffic World, Inc.
The losses of commercial real estate developers ProLogis and AMB Property could be gains for other U.S. warehouse operators or third party logistics providers.
The nation''s largest distribution facility developers are shopping some of their U.S. properties to potential buyers as they seek to rein in debt, pare down warehousing inventories and reassert control of balance sheets that promise billions of dollars in debt servicing due this year.
Developers are moving away from the aggressive, sometimes speculative growth models of just a couple of years ago, selling off assets in parts of the world where expansion has stopped and empty warehouses are proliferating. Cash-healthy or creditworthy 3PLs and distribution center operators may find some bargains as the big developers peel away properties that could confer a competitive advantage for their owners when the freight economy begins to recover.
"We''re in discussion with third parties on a number of fronts, from potential joint ventures to outright sales," said ProLogis CEO Walter C. Rakowich during a conference call in February.
ProLogis lost $887.1 million in the fourth quarter of 2008, compared to a net gain of $113.3 million for the same period in 2007. The developer, which owns, manages or has under development 349 million square feet in North America (of 475 million square feet worldwide), recently sold its assets in China and Japan for about $1.3 billion and hopes to reduce its debt this year by some $2 billion.
"Our goal is to run a parallel course on several options, only some of which we expect to happen," Rakowich said. "We''ve been marketing various portfolios of assets in the U.S. and have received a significant amount of interest on various subsets of those assets."
Competitor AMB Property, which lost $201.9 million in the fourth quarter after a $93.2 million net profit the year before, is taking similar actions.
"We are currently exploring various options to monetize our development and operating assets, including the possibility of forming joint ventures and asset sales," said AMB''s CFO Tom Olinger.
San Francisco-based AMB, which owns or operates 130.2 square feet of distribution space in North America (out of 160 million square feet worldwide), also reduced staff 22 percent, the company''s first headcount reduction in 25 years.
"Right now, we have properties available for sale or contribution of $1.1 billion as of year-end," Olinger said, "as well as some operating properties in the U.S. We will use the proceeds from these potential transactions to pay down debt."
ProLogis received about 80 offers for various portions of its portfolio, said Chief Investment Officer Ted Antenucci. Bids "are all over the map," he said, ranging from $25 million to $200 million and beyond.
Neither developer would comment about which properties might be sold, nor where they are located.
The "For Sale" signs mark a sharp turnabout after a decade of rapid growth that turned distribution center developers into major forces in the logistics arena. But if you''re thinking that dumping tens of millions of square feet of distribution space might create tempting buying opportunities throughout the warehousing sector, you''re not alone.
"Almost every warehouseman has some space available" as a result of the ongoing economic slump, said Richard Armstrong, CEO of Armstrong & Associates. By grabbing up excess capacity now, 3PLs and warehouse operators could lock in an advantage that will pay dividends in an economic recovery.
"For people who need space, the prices should be competitive and possibly even less than they were a year ago," Armstrong said. "It''s just like the stock market - if you have cash, there are all kinds of good arguments for buying into the market right now."
The real challenge for developers will be deciding which properties to cut loose and which to hold, Armstrong said. Although their tendency might be to retain facilities in healthier distribution markets - say, near ports or heavily trafficked metropolitan centers - buyers won''t want scraps if there is still dinner on the table.
Developers "have to be willing to sell some markets that will have some attractiveness for those investors," Armstrong said.
Warehouse owners and 3PLs scooping up developer real estate may have as much as a 5 percent pricing advantage over shippers and service providers still leasing from property managers or third parties when an economic recovery kicks in, Armstrong said.
"Expect ProLogis to sell off market by market and buyers to be people who are more interested in (marketing properties) a couple years from now," he said.