Investing in the right industrial buildings, not the prettiest

A typical site before CenterPoint tackles redevelopment.

A typical site before CenterPoint tackles redevelopment.

by Dan Rafter

It can be a trap for industrial real estate companies: When it’s time to invest in new properties, they seek out the prettiest sites they can find, searching for new buildings with the latest amenities or greenfield developments lined with walking paths and landscaped ponds.

But here’s the problem: Location remains the key element in deciding whether an industrial property is the right fit for investors. A pretty, amenity-filled distribution facility does an investor little good if it’s located too far from the rail lines, highways or ports that manufacturers need to distribute their products.

That’s why CenterPoint Properties, headquartered in the Chicago suburb of Oak Brook, Ill., takes a different strategy when investing in industrial real estate. The firm searches for properties that are close to transportation infrastructure, resisting the urge to invest only in new properties dotted with the latest amenities.

It’s a strategy that has worked well for the company.

“There is a general industry movement for investors to look only for product that is new or brand new,” said Jim Clewlow, chief investment officer for CenterPoint Properties. “That is not what we do. We are not saying that new properties are bad. But we want to be close to transportation infrastructure. If a property is new and not close to transportation, we don’t think that’s a good choice.”

This is why CenterPoint has invested in such abandoned properties as the former Joliet Arsenal in Illinois, turning land on this formerly vacant site — a manufacturing plant for munitions developed by the U.S. Army in the early 1940s — into the 1,500-acre industrial park known as the CenterPoint Intermodal Center in Joliet, Ill. What made this site a special one for CenterPoint? Joliet is located close to rail and roads.

For Clewlow, CenterPoint’s strategy of investing in older properties or brownfield sites is all about reducing the time it takes companies to ship their products across the country. He points to big companies such as Walmart. The superstore chain doesn’t compete just because of its low labor costs, he says. It succeeds because it seeks out the lowest transportation costs, which allows its stores to sell their products at lower prices.

It’s a powerful formula: Walmart ships the right amount of products at the right time to the right buildings.

“They are not carrying loads into Seattle at the wrong time,” Clewlow said. “They are not putting snow blowers in their buildings in July. That is what Walmart has become so good at. Home Depot and other big retailers have adopted the same strategies.”

Clewlow says that CenterPoint helps its customers follow the Walmart example. He points to a customer in the early 2000s whose business involved bringing containers from China to Chicago. CenterPoint worked with this customer as it reevaluated its supply chain to make sure that it could ship the containers across the globe as efficiently, and with as low a price tag, as possible.

“We listen to our customers. They are increasingly focused on supply chain and inventory management,” Clewlow said. “They are developing sophisticated models for this. Real estate directors used to drive companies’ real estate decisions. Today, real estate directors and logistics directors are working together to find companies the right locations.”

And at the end of the day? It might be the logistics directors who make the final decision on where companies place their manufacturing and distribution facilities, Clewlow said.

“Think about this: If you find a location where you can reduce your rent by a quarter for one year, those savings pale in comparison to the savings you would have had if you were located closer to transportation and infrastructure,” Clewlow said.

CenterPoint, of course, doesn’t only look at location when seeking out buildings in which to invest. CenterPoint also makes sure that it can affordably and efficiently upgrade older buildings into spaces that will attract today’s tenants.

CenterPoint has its own in-house tools to allow it to do this. That makes the search for properties located close to traffic infrastructure an easier one.

“You have to find the right building that you can adapt for your customers,” Clewlow said. “It’s more of an art than a science. We don’t want to be in the remodeling business for two or three years. We know what we want to do. We want to be off and running within a six-month period.”

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