Infill Small Bay and Niche Industrial Properties Acquisition
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Overview
- 1788 Holdings, LLC is seeking ~$80 million of debt and equity (could ultimately grow to $500 million) to acquire infill small bay and niche industrial properties in the Washington DC, Boston, Miami and Philadelphia’s MSAs
- Planned exit as a sale of rolled-up portfolio after stabilization and potential repositioning
- Management expects cap rate compression from the sale of an aggregated portfolio
- 1788 Holdings is a Bethesda, MD-based boutique real estate company that develops and invests in office, residential, industrial and retail real estate
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- seasoned real estate professionals with significant investment and asset management experience
- lead principal directed office, industrial and retail real estate investment in the US for Goldman, Sachs

Opportunity
Industrial assets in the targeted metropolitan areas have strong fundamentals:
- Increasing scarcity: The existing supply of small bay and niche industrial properties in infill locations within the focus areas is declining. These assets are typically located adjacent to residential and commercial districts and are regularly being torn down in favor of the development of other product types with a higher density (residential, office, hotel and retail)
- Attractive pricing: They can be acquired at pricing which is below their
replacement cost as current rents do not support the cost of new construction when the market value of the land is considered. As a result, there has been little to no new competing product developed in the focus areas in the last several real estate cycles
- Increasing demand at low capital costs: As the population of the focus areas continues to grow and densify, the demand for space at small bay industrial properties from both the businesses that occupy the space and the customers of those businesses is expected to increase. Capital costs associated with leasing these properties are exceptionally low relative to other commercial (office and retail) property types
- Very low vacancy rates: These assets have typically had very low historical vacancy rates (<5%)

Solution/Strategy
- Typical property size: 30-70,000 SF; 1,500 to 8,000 SF per bay
- Potential cap rate compression expected to be achieved via aggregating and selling a portfolio of infill small bay and niche industrial properties
- Targeted properties are generally 1) owned by individual investors, 2) have lower-credit lessees, and 3) tend to trade at initial cap rates of 6.5% to 8.0%
- Targeted properties are generally not widely marketed by their owners – too small for institutional brokers
- Many large institutional investors seek these assets, but cannot efficiently acquire them on a one-off basis
- On a portfolio basis, however, institutional investors have acquired this asset class at a material spread (lower cap rates) to one-off pricing given its supply/demand dynamics and scarcity value

Management

Larry Goodwin – Principal
Head of acquisitions. Sets the strategic vision for the firm. Over 30 years of commercial real estate experience. Prior to forming 1788 Holdings, spent the previous 12 years as a senior professional in the real estate merchant bank of Goldman, Sachs & Co. Managed operating partners to develop roughly $2 billion of office, industrial and retail projects and bought, managed and sold roughly $15 billion of properties. High-quality relationships with major institutional investors and many key intermediaries and real estate firms

Brian K. Fields – Chief Operating Officer
Over 20 years of commercial real estate experience in various capacities including corporate director, CFO, auditor and financial consultant. CFO of CarrAmerica Realty Corporation and its predecessors in Washington, DC, a NYSE traded real estate investment trust that rapidly grew from $600 million in assets locally to over $4.5 billion in assets nationally. Participated in all strategic operating, investment and finance decisions as a member of the six-person Management Investment Committee and five-person Operating Committee, and as a director and officer of the company’s management and development subsidiaries.