Cold Storage Bldgs. Ready for Center Stage

By Brian J. Rogal | Chicago.

Preferred Freezer Services at 2500 S. Damen Ave. in Chicago

CHICAGO—The economic recovery has brought many asset types back to health, but other changes in the economy, such as the rise of e-commerce, have also transformed certain sectors such as product distribution. Likewise, the cold storage industry is set to undergo big changes that could fuel its rise as an asset class of far greater interest to investors.

“It’s a property type that people will want to be looking at going forward,” Nancy Hardy, a research analyst withCushman & Wakefield, tells GlobeSt.com. Many people in the US have committed to eating healthier, and this change in habits means millions of consumers will want access to certain foods throughout the year, leading to a greater need for cold storage facilities.

There was a bit of a decline in this type of demand during the recession, Hardy adds, but the recovery has returned the demand to an upward curve, and “many companies are expanding product lines to include more healthy foods. It’s a growth market and you’re going to see more interest because of that.”

Growth in US cold storage capacity has increased by an annual average rate of 9.3% since 2008, according to a new study by Cushman & Wakefield. But the industry remains a very specific niche within the warehouse and distribution sector, Hardy adds. “There aren’t a lot of players in the market,” primarily because the buildings are expensive to finance, purchase, and operate. Just five major players control nearly 50% of the North American inventory.

There are currently 1,497 cold storage buildings in the US totaling 4.06 billion gross cubic feet of space, Cushman & Wakefield found. Roughly three-quarters is public storage and the rest is either private or semi-private. But most of the assets are somewhat obsolete and have limited appeal to investors.

Still, many of the newest cold storage facilities include centralized or distributed refrigeration systems, ceiling heights of up to 60 feet, in-slab frost protected floors, refrigerated dock areas to maintain ideal temperatures, quick and blast freeze apparatuses, and fixed or portable freezing tunnels—all of which maximize efficiency and keep products at ideal temperatures.

“These facilities do tend to sell for more per square foot” than dry storage distribution centers, Hardy says. Cushman & Wakefield found that cold storage buildings constructed since 2000 sell for roughly double the price per square foot compared to standard warehouse and distribution buildings. And the newest buildings with emerging technologies can push values even higher. In the top 10 markets, the average purchase price for buildings constructed since 2010 is $150.95 per square foot.

For example, as reported in GlobeSt.com, Romel Enterprises, LLC recently sold its class A, cold-storage industrial facility at 2500 S. Damen Ave. in Chicago to AAG Management for $33 million. The 128,200 square-foot building is 100% leased to Preferred Freezer Services. AndLowe Enterprises Investors recently sold 1205-1321 Wholesale St. in Los Angeles to SunCal Cos. for $79 million, or about $432.88 per square foot.

The specialized nature of these properties probably means that the new buyers jumping into the market won’t be general investors, Hardy adds. “I think it’s going to be investors that already have portfolios with dry storage facilities.” Furthermore, these properties are for long-term investors. “Cold-storage properties are going to have tenants that will remain for a long time.”