Lenders need to understand what is driving this improvement in industrial and that finding the comps to justify newer higher prices and lower cap rates will be tough, he said. Cap rates continue to compress and warehouse prices rise due to increasing investor demand for warehouses.
“Anytime an asset type recovers, appraisers are slow to recognize the improvement and have transactions to justify the recovering higher prices.”
Not only has there been a manufacturing renaissance in the U.S., but the supply chain is also changing radically in response to the expansion of the Panama Canal, which will allow larger ships to pass through to ports on the Gulf and East Coast. Growth in e-commerce will also effect just where industrial building will take off, Conway said.
The first 10 years post Panama Canal Expansion in 2015 will be very different than the last 30 to 50 years, which have been LA, Long Beach and Inland Empire of California concentric.
Connecting “Post Panamax” ports – ports like Norfolk and Baltimore that can already receive these new larger container ships and those like Savannah, Miami and New York who are expanding – with modern intermodal facilities and e-commerce centers in Memphis and Kentucky is the new supply chain, and not so much LA to Chicago.
“Those that get it will lend in the right places, and those that don’t will have a portfolio of underperforming industrial loans,” Conway said.
It is key for lenders to understand all this if they are going to get back into the industrial lending space, Conway said, because it is night and day different from before the 2007 recession.