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Charleston Industrial Fortune

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Charleston Industrial Fortune

Charleston and Savannah are getting a lot of attention these days. Here are 3 tips for successful industrial real estate investing.

At the Port of Savannah, Executive Director Griff Lynch looks out his office window at the heart of the supply chain crunch.

What he sees in the distance is a long line of vessels. On the phone, he tells a New York Times reporter 22 ships are waiting to unload. Each is qued up one mile apart in a convoy that extends well into the Atlantic. Griff hopes the wait will be only five days, which is nothing compared to the conditions at other ports, most notably Long Beach.

Three years ago, I attended a Counselors of Real Estate (“CRE”) conference in Charleston and an SIOR conference in Savannah, both in the same year. Both had tours of their ports led by the port directors. I remember Griff as a confident leader who seemingly balanced the roles of operations and economic development executive. He talked about the port’s future, stating that Savannah would be among the busiest ports in the nation one day. However, on that day in October 2019, from my perspective, not much was happening.

But not today. Today the cranes are operating 24/7. More than 80,000 containers sit on acres and acres of trailer yards. They are waiting to be loaded or unloaded; its contents hauled to many millions of SF of new warehouse space that has sprung up outside of town since my visit in 2019.

I had an opportunity to invest in industrial buildings and land in Savannah and Charleston five years ago and concluded that a regional port, in itself, does not make a market.

There need to be more market demand drivers—a lot more. Boeing, Volvo, and Mercedes manufacturing are nearby in Charleston, but other factors must be considered. One is the availability of land. Charleston’s industrial market is tight because it is land-constrained; but ten miles outside of town in areas like Goose Creek and Summerville, there is ample land and many speculative projects. How many of these projects can be supported by a small city with a booming population and a thriving port? And, why is there so much interest by commercial real estate investors there?

There is an element of what I call the “A Great Place For An Asset Manager To Visit On a Friday" effect.

Every acquisition team on the East Coast plans at least one trip to Charleston a year. First, they ride around with brokers, who are quite familiar with (and weary of) these itinerant sight-seers, who spend the night at a great hotel and have dinner in the historic district. Then, they leave the next day and conclude the following:

  • The market is much smaller than they thought going into it, and it would be hard to get the kind of scale to make sense (fun to place to visit, but they’d need many assets to leverage their visits)
  • There is not much of a track record of institutional sales in the market, so they do not know how to make exit assumptions. Will there be a buyer when they are ready to sell?
  • Absorption and deal velocity is lower than they thought. It is a fraction of the activity that one would get in Charlotte or Atlanta.
 

So what is an investor’s play for industrial real estate in Charleston?

  • Acquire smaller deals of class B buildings near the airport. It is infill, close to town and it will always be in demand.
  • Develop tech space with shallow bays and a high percentage of office in the submarkets like North Charleston.
  • Open an office and have someone run between Charleston, Savannah, and Columbia, working the broker relationships that will result in being on the broker’s prospect list.
  • Promote every deal, no matter how small, as if it were a huge deal, and eventually, you will be recognized as a player, and the brokers will bring you opportunities.
 

Do all of this and hunker down for the long term

And 100 years from now…

  • A street will be named after your family;
  • Your daughter will have been mayor; and,
  • It will be time to sell. Your grandchildren will say, “Do you remember how he used to complain about paying $100 SF for a rotten old building at the end of the runway?”

 

Are you interested in knowing the top three characteristics of value in commercial real estate acquisitions? Reply to the message, and we will share our insights on what to look for when making a real estate deal.

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