H.I.G. Realty Partners has just formed an industrial outdoor storage platform, and the company seeded the new endeavor with the acquisition of a 55-property portfolio. The collection of assets gives H.I.G. an instant 2.3 million-square-foot national footprint in the increasingly popular subsector.
H.I.G. Realty, the real estate arm of global private equity investment firm H.I.G. Capital, is keeping mum on the acquisition price. However, the company has disclosed enough details indicating that the purchase constitutes a major play in the IOS sub-sector. The group of assets spans 20 states and is sited in sub-markets featuring robust economic and industrial fundamentals. Furthermore, the portfolio is 100 percent leased and provides substantial upside potential, given that the collection’s in-place rents are 50 percent lower than prevailing rents in the various sub-markets.
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In a prepared statement, David Hirschberg, co-head of H.I.G. Realty Partners, outlined the importance of the transaction for the company, noting that the acquisition allows H.I.G. Realty to create a platform to consolidate a highly fragmented space, characterized by limited institutional competition and unique supply/demand fundamentals.
IOS is hardly a new sub-segment of the industrial sector, but it is rising on the investment community’s radar after being predominantly overlooked for quite some time. Investors’ growing attraction to the property type has everything to do with high demand and low supply.
“Existing IOS facilities have become increasingly coveted by industrial users, as developers have been largely dissuaded from starting new projects. A combination of strict zoning requirements, unfavorable building-to-land coverage ratios, and municipal development restrictions has confined many developers to traditional industrial properties, suppressing additional supply,” according to a report by Marcus & Millichap. With demand on the rise and inventory constrained, IOS is experiencing higher rent growth than traditional industrial assets, as well as comparatively lower vacancies.
H.I.G. is one of a growing number of companies that are making major moves in the IOS market. Most recently, in early March 2023, GreenPoint Partners announced its launch of a dedicated $500 million IOS platform via a strategic investment in Semi-Stow, a semi-truck parking and trailer storage operator. And in 2022, J.P. Morgan Global Alternatives and Zenith IOS made a splash in the sub-sector with the formation of a $700 million joint venture for the creation of an IOS platform targeting $1 billion in investments over a two-year period.