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SVN Captures Industrial Share
A cold call made by a San Francisco broker for Sperry Van Ness Equities led the Irvine, Calif., firm to buy all but two of the remaining industrial properties in the metro area owned by First Industrial Realty of Chicago.
“It was one of our brokers who cold-called all the REITs and asked if they had anything for sale, and First Industrial said they had this portfolio in Grand Rapids they were interested in selling,” said Dave Ebeling, SVN communications manager.
“It’s definitely an exciting time and probably the first of many portfolio properties outside of California for us,” he added.
SVN Equities bought 15 of the 17 buildings, totaling nearly 1.9 million square feet of space, held by First Industrial for $49 million — making it the largest industrial transaction here since Bloomfield-based Kojaian Management Corp. picked up 25 buildings and 5.2 million square feet of space from local developer Robert Grooters in April 2000.
The sale to SVN closed on Dec. 26, and was largely financed through a $38 million loan from the General Motors Acceptance Corp. The purchase instantly made SVN the third-largest owner of industrial properties in the region, trailing only Kojaian with its 5.2 million square feet and Grooters with 3.3 million.
Grooters may catch and pass Kojaian for the top spot, as the development company has plans to build another 2 million square feet this year.
SVN President Burton Young told the Business Journal last week that there were a half-dozen reasons why his firm was interested in the properties and the region. The first thing he said that impressed him was the sheer size of the portfolio.
“It’s a large portfolio and big enough for us to go outside of our normal investment market, which is Southern California, and stretch our wings east. The fact that it was 75 percent occupied made us feel that there is an opportunity for us to make a better-than-average return,” said Young, who oversees the management and leasing of more than 4.5 million square feet of office, industrial and retail space for SVN.
“It’s a good investment, just on its own merits,” he added.
Young said another reason that SVN went ahead with the deal was that his firm views the metro area as having a dynamic industrial base, making it a strong second-tier market. As for the area’s lease rates, Young said the market ranks near the bottom in costs and carries much lower lease rates than SVN is used to in California.
“But I think that the market itself is extremely competitive and that rates are kept almost artificially low from the standpoint of the tough competition that exists in the marketplace,” he said.
Mark Mimms, a senior SVN associate in Fresno, represented his firm in the hefty deal, while Duke Suwyn and John Kuiper of Grubb & Ellis/Paramount Properties of Grand Rapids did the same for First Industrial.
Grubb & Ellis/Paramount had leased space at the properties for the past three years and began selling the buildings about 18 months ago when a marketing agreement between First Industrial and a Chicago broker ended. The local broker took a different approach by selling buildings individually, instead of pushing the entire portfolio.
“We closed about 10 buildings since the first of last year on an individual basis, either one or two buildings. Then about four or five months ago, we had an inquiry made on the balance of the portfolio. There were 17 buildings left in the First Industrial portfolio after we sold off those individual buildings,” said Suwyn, Grubb & Ellis/Paramount president and CEO.
“They look at us as a stable market and they look at us as having the potential for some upside,” Suwyn said of SVN.
Kuiper, recently made a partner at Grubb & Ellis/Paramount, said the only industrial deal larger than this one in the area was the Kojaian purchase of the former Grooters properties — a sale that was transacted in two segments. Although this sale was not as complex as that one was, it still was an intricate one to put together.
“One night at the dinner table with my wife, I started counting the people that were involved and I got to 33 people and I knew there still were a bunch that I had missed. Just the sheer volume of attorneys, lenders and environmentalists. It was pretty complicated,” said Kuiper.
“It was very important to try and maintain some kind of control to keep the thing moving in one direction.”
First Industrial once owned 2.86 million square feet of industrial space at more than two dozen buildings in the area. Nearly three years ago, the company decided to divest itself of all its holdings in second-tier markets in order to concentrate on its major-market properties.
First Industrial still owns a pair of single-tenant buildings located near the Gerald R. Ford International Airport. Suwyn said both of those structures, at 5050 Kendrick and 5015 52nd St., were filled and are for sale.
“They will, at some point, sell those. But they don’t have anything to lease there, so it’s a real easy one to market,” he added.
SVN will continue to use Grubb & Ellis/Paramount as its leasing agent.
SVN Director of Management Services Jack Carroll came here last week to begin setting up the company’s local office.
“We’re going to open an asset management office to manage these 2 million square feet, as well as other assets that we may be able to drum up business with,” said Young.
Rand Sperry and Mark Van Ness joined forces to start Sperry Van Ness in 1987, which today has operations in more than 45 regions.