Betting On Cargo Growth

Thank you to all who have emailed about your interest in a much discussed Oakstone REIT which would be specializing in Industrial Markets around major airports starting with LAX where we are based…read below about a Developer who also believes strongly in the same type of  development…around JFK. It explains clearly why developing and or  acquiring said facilities have a long term strategic value….even though the article discusses only JFK …. some of the same discussion points apply to other major airports.

The industrial market around Kennedy Airport — where tenants tend to be freight-forwarding businesses, prescription trucking companies, and United States Customs brokers, sales and other airline or aviation-related service businesses — is one of the most robust in the world, according to the CoStarGroup a real estate information company in Bethesda, Md.
Because the area has virtually no land available to develop, inventory rarely grows and vacancy rates tend to hover at around 5 percent, while prices to lease space or buy it are among the highest in the nation’s industrial markets, including its airports.
“Though global trade flows are down, it’s almost impossible to build new space” at Kennedy, said Hans Nordby, a director of advisory services at CoStar, “and people who ship air freight are fairly price-insensitive, because they just have to be there.”
The airport’s air cargo volumes, particularly international ones, have been growing rapidly since November 2009, and airport officials and developers are preparing for an upswing in global trade over the next few years.
Vista Realty Partners, a real estate development firm in Manhattan, will break ground in September on an air cargo warehouse, possibly with offices, of up to 110,000 square feet on five acres on Eastern Road, on the northern edge of the airport.
The last warehouse to be built near Kennedy was the four-building AMB JFK Logistics Center, which was begun in 2001 on Rockaway Boulevard.
To build even the most generic of warehouses, construction costs would be about $125 to $150 a square foot, said Marc Esrig, a principal with Vista. While Vista’s principals would prefer to build for a specific tenant, they are comfortable enough with the reviving market to forge ahead without one, he said.
Asking rents in the Kennedy Airport industrial market are about $13 to $14 a square foot, according to the Greater Jamaica Development Corporation. “It’s a tremendous investment to build a building and not have a tenant to take the risk,” Mr. Esrig said, “but we’re sensing that this economic freeze is starting to thaw.”
While New York City owns all the property inside the airport, which is leased to and run by the Port Authority of New York & New Jersey the largest property owner off the airport grounds is AMB Property, a real estate investment trust based in San Francisco that specializes in distribution facilities.
AMB owns about 1.5 million square feet of the six million-square-foot market surrounding Kennedy Airport, said Reid Berch, a senior director and partner at Corporate National Realty, a commercial brokerage, whose client is AMB.
“In 2010, we’ve seen a steady, slow, positive increase in activity and leasing,” Mr. Berch said. “And the occupancy is increasing as well, so the market’s looking stronger.”
Besides those properties owned by AMB, other ownership consists of a few private companies, institutional owners and some local families. The second largest owner is Seagis Property Group of West Conshohocken, Pa., one of the leading owners of industrial real estate in the eastern United States, which owns 500,000 square feet.
“It’s a pretty unique market to own property in,” said Charles Lee, a principal at Seagis, “because you’ve got what is in the neighborhood of the seventh-largest international cargo airport in terms of volume, but you have a pretty finite universe of buildings for that cargo to go into.”
The additional 110,000 square feet of space coming with the Vista Management project, which will provide the only modern facilities other than the JFK Logistics Center, will have little effect on rents at existing warehouses, he said. “Clearly new supply always dampens leasing velocity for a period of time, but 110,000 square feet isn’t going to give anybody any broad concern for that marketplace over time,” Mr. Lee said.
In addition to the Vista project, the Port Authority said on April 29 that it would begin demolishing six obsolete cargo buildings and five underutilized hangars on the airport to expand its cargo and passenger businesses.
The $42.3 million program will free up about 109 acres for development of locations for future cargo growth, among other functions, said Michael J. Bednarz, the Port Authority’s air cargo business manager.
Right now, we are O.K. in terms of warehouse capacity versus the amount of cargo; however, we are in a growth pattern again,” he said. For the months of November through March, international and domestic cargo volume grew almost 20 percent from the same month a year earlier.
“We are in a decent growth pattern, and we expect this return to growth to stay consistent,” Mr. Bednarz said.
The buildings and hangars are no longer used because many airlines are divesting their real estate and transferring cargo-handling duties to third-party operators. Kennedy Airport will be redeveloping some of the demolished buildings and hangars to consolidate them into a sort of “cargo campus,” said Susan M. Baer, aviation director for the Port Authority.
“Airlines are interested in focusing on their core business — flying airplanes and people — and want to have others handle cargo for them,” Ms. Baer said. “And it can be done more efficiently for them by a third party, without having to have these long fixed leases and big structures to maintain themselves.” (credit nytimes)
Industrial Real Estate Facilities adjacent to major airports are core assets  they are solid investments that carry a long term value.  Said value is tied to cargo and international  trade,  which in the world we live in today is one of the main pathways to economic growth.