- change ups
First Industrial Property Still On The Market
GRAND RAPIDS —The third-largest owner of industrial properties in the area revealed 20 months ago that a strategic change in policy meant the firm would sell its local holdings.
And First Industrial Realty Trust Inc. is continuing that sales effort.
“We knew that our larger positions in our larger exit markets would be ones that were going to take a lot of planning and a lot of strategy and a significant amount of time. Is it behind schedule? Is it behind our assumptions? No,” said Joe Bronson, spokesman for First Industrial.
First Industrial decided to focus its business only on the nation’s top 25 industrial real estate markets. To fulfill that goal, the company must sell its properties in eight cities, or exit markets, and buy real estate in Miami, San Diego, San Francisco and Seattle.
President and CEO Michael Brennan announced in December 1999 that the firm had chosen that direction because the e-commerce and supply chain management sectors were creating a strong demand for industrial space in the largest markets.
But this policy change meant that the Chicago-based firm would have to sell about 2.8 million square feet in Grand Rapids, and also list its properties in Cleveland, Columbus, Dayton, Des Moines, Hartford, Long Island and New Orleans. First Industrial estimated the value of these exit-market properties at $450 million to $500 million, and said they were occupied at an aggregate 95 percent.
So far, First Industrial has sold its holdings in four of those markets: Cleveland, Hartford, Long Island and New Orleans.
Bronson told the Business Journal that the company considers the strategic change an ongoing effort and is still very much in the process of selling properties in its exit markets.
“We’re still planning on not being long-term operators in the Grand Rapids market,” said Bronson.
Economic factors, like a slowdown in manufacturing and cuts in the prime rate, may affect First Industrial’s plan — but won’t alter the company’s course.
“The main issue is always for First Industrial to provide its shareholders with the most amount of value, and provide our owners with the most amount of gain. We always want to look for the most optimal transaction possible for the owners of First Industrial,” Bronson said.
“If there is a broader economic factor like lower interest rates, yes, that might make it easier for a smaller investor to purchase property. That might have some role. But at the end of the day, it’s the basic fundamentals of real estate.”
The strategic change appears to have worked for First Industrial. Last year, the company:
- Sold 109 properties and several parcels of land for $433.7 million, including $241.8 million in its exit markets, at an average capitalization rate of 9.5 percent and an unleveraged internal return rate of 17.2 percent.
- Placed $144 million worth of new developments in service totaling 3.8 million square feet that was 94 percent leased.
- Acquired $263.6 million worth of property with 5.8 million square feet.
- Had actual cash-on-rental increases of 8 percent.
- Had an overall occupancy rate of 95.3 percent and a tenant retention rate of 76.2 percent.
First Industrial has been in the local market since 1994 and owns about two dozen properties used for warehousing and manufacturing. The company’s local office is at 4880 36th St. SE.
First Industrial owns, operates and manages 84 million square feet of industrial facilities, including developments in progress. The company is traded on the NYSE under the symbol FR.