An arm of Goldman Sachs Asset Management is increasing its investments on industrial real estate with the help of funds tied to Dallas-based real estate firm Dalfen Industrial in the purchase of a U.S. logistics portfolio in a $293 million deal.
Goldman Sachs Alternatives and Dalfen Industrial acquired the 21-building, 2.1 million-square-foot portfolio in an off-market deal from a partnership between Blackstone and Lincoln Property after about 10 months of negotiation, Dalfen Industrial President and CEO Sean Dalfen told CoStar News.
"Goldman has been a wonderful partner of ours; We've partnered with them on joint ventures with our funds in which we can buy a lot more assets and add a diverse and sizeable pool without the overall fund exposure," Dalfen said in a phone interview. "We intend to continue to work with them."
The acquisition has last-mile distribution facilities ranging from 34,200 square feet to 260,448 in four major U.S. metropolitan areas, including Dallas-Fort Worth, Las Vegas, Cincinnati and Pennsylvania. The deal brings the Goldman Sachs-Dalfen Industrial partnership's holdings to 19 million square feet of industrial space spanning 94 buildings in major U.S. markets. Like most of Dalfen Industrial's deals, the portfolio was negotiated in an off-market deal with sellers that the partnership has a strong relationship, Dalfen told CoStar News.
"Over 80% of the properties we buy are truly off-market deals," Dalfen added. "We still buy on-market deals, but the assets we select in off-market deals are some of the best properties. We are cherry picking what works best for us and targeting specific properties."
In all, Dalfen Industrial owns more than 55 million square feet of industrial space in the United States.
The chronic undersupply of small industrial spaces is expected to persist this year, CoStar's National Director for Industrial Market Analytics Adrian Ponsen said in a recent report on expectations for the industrial market this year. Smaller, last-mile logistics hubs are somewhat insulated from potential economic headwinds, industry sources said in the article, with high barriers-to-entry, such as the high cost of land or prohibitive new development costs, further sheltering would-be investors.
Dalfen Industrial is a major industrial player throughout the United States, being on both the buy and sell side of the business every year, Dalfen said. Even as the economic cycle ebbs and flows, Dalfen said industrial properties with high barriers-to-entry in key U.S. logistics markets have more tailwinds than headwinds in the coming years.
"We want to buy the right properties," Dalfen told CoStar News. "We still believe in the fundamentals of location and the market drivers of industrial, and there's no place better to invest than in the United States.
"We are buying best-in-class assets in locations that are hard to reproduce," he added. "People will keep buying goods online, and the cost of transport is not going to be reduced anytime soon. The more a company is closer to a consumer, the more they can profit on selling goods."
The portfolio that was 92% leased at the time of the acquisition is leased to 68 tenants, including Amazon, Red Bull and Packaging Corporation of America. The buildings were acquired at "below replacement cost," Dalfen said, with plans to make "strategic improvements" to the properties.
Chance Monroe, managing director in real estate at Goldman Sachs Alternatives, said in a statement that the acquisition fits in the investment firm's strategy to buy assets benefitting thematic trends, such as the growth of e-commerce and onshoring in locations with favorable consumer and labor market dynamics.
In another off-market deal, Dalfen Industrial, which owns and operates 12.6 million square feet in Texas, also purchased a more than 130,000-square-foot industrial building at 4251 Fleetwood Road in Fort Worth, Texas. Like the larger portfolio deal, Dalfen said the nine-year-old facility would be difficult to build these days, making it all the more appealing to the industrial landlord.
"In the short-term, there's no construction pipeline to replace these, and the rental rates will only increase as cities don't seem to want industrial projects anymore," Dalfen said.