Rexford Navigates Industrial Market Slump with Smaller Warehouses

Rexford Industrial is thriving amid a national warehouse slump by focusing on smaller buildings.

Jordan B. & Han-Gwon Lung
July 25, 2024

Together with

Good morning. Rexford Realty is outperforming the rest of the SoCal industrial market by specializing in smaller warehouses. Plus, Blackstone Mortgage Trust (BXMT) cut dividends by 24% and announced a $150M share buyback plan as it navigates rising defaults.

Today’s issue is brought to you by AirGarage—automatically adjust parking rates based on real-time demand in your area.

🎧️ Episode 2 of No Cap is now live! Listen as we sit down with the King of HUD, Josh Sasouness, co-CEO of Dwight Capital, one of the nation’s leading multifamily lenders. Watch or listen on Apple and Spotify.

Market Snapshot

S&P 500

GSPC

5,427.13

Pct Chg:
-2.31%

FTSE NAREIT

FNER

764.05

Pct Chg:
-1.97%

10Y Treasury

TNX

4.222%

Pct Chg:
-0.065

SOFR

1-month

5.34%

Pct Chg:
0.0%

*Data as of 7/24/2024 market close.

SMALLER IS BETTER

Rexford Navigates Industrial Market Slump with Smaller Warehouses

Rexford Industrial Realty (REXR) is thriving amid a national warehouse slump by focusing on smaller buildings.

Going small: The Los Angeles-based REIT reported a 2.7% vacancy rate in June, outperforming the Southern California infill market’s 3.9% and the national average of 7.1%. Rexford’s strategy centers on smaller warehouses averaging 26,000 square feet, leading to higher occupancy rates.

By the numbers: Despite a 4% rent increase, tenants are renewing leases, anticipating future market-wide rent hikes. The firm’s executives highlight the high entry barriers in Southern California for similar warehouse sizes, contributing to their stable tenant base.

Earnings report: In Q2, Rexford achieved a net income of $79.8M, a 55% increase from the previous year. Total revenues climbed to $237.6M, a 21% rise. As a result, JPMorgan adjusted the price target for Rexford Industrial Realty, increasing it to $52.00 from the previous figure of $47.00.

Zoom out: Nationally, net absorption for industrial properties fell to 45.5 million square feet from 74.4 million square feet the previous year. Southern California’s industrial market is experiencing increased vacancies due to reduced consumer spending, with projections indicating this trend will continue.

➥ THE TAKEAWAY

Looking ahead: Rexford anticipates some near-term volatility but remains optimistic about long-term rent growth in Southern California. They’re keeping an eye on 3PL tenant losses, tariff changes, and power supply issues. Meanwhile, Prologis (PLD) reported an 18% revenue drop last quarter due to rising vacancies and decreased demand post-pandemic, now shifting focus to data centers and AI for future growth.

TOGETHER WITH AIRGARAGE

Generate More Income from your Parking Facility with AI-Powered Rate Optimization

AirGarage’s Advanced Pricing system uses AI to automatically determine the optimal rate, based on real-time occupancy and a variety of other factors such as time of day, seasonality, and local events happening nearby.

Their AI-powered pricing system is on 24/7, so your property can automatically capture more revenue from drivers during peak hours by increasing rates and using competitive pricing to drive more traffic during slower periods.

AirGarage partners have seen their revenue increase by as much as 44% after enabling our pricing engine.

Talk to AirGarage today and let them show you how they increase your NOI with a custom proposal for your parking facility.

✍️ Editor’s Picks

Dividend drama: Blackstone Mortgage Trust (BXMT) cuts its dividend by 24% to 47 cents per share, forecasting $100M in annual savings but also attracting short sellers.
Master Real Estate Investing: Reserve your spot in the 8-week online Wharton Online & Wall Street Certificate Program. Build your network, gain practical skills, and learn from top CRE executives. Use code CREDAILY by 8/12 to save $500.
Funding flux: South Florida’s VC funding dropped to $361M in Q2, with 71 deals compared to the previous quarter.
The new guard: J.P. Morgan Asset Management (JPM) appoints Josh Myerberg as managing director for its $89B real estate portfolio.
Hacker haven: Cybercriminals targeting real estate transactions are becoming more sophisticated, and total fraud losses will top $446M by 2022.
Falling through: The potential stalking horse bidder for LA’s Oceanwide Plaza missed the bid deadline, but lawyers remain optimistic about future sales.
Bond boom: US high-grade bond sales hit $92.2B in July, the highest level for the month since 2017, exceeding expectations as companies seize favorable market conditions.

🏘️ MULTIFAMILY

Multifamily sunset: New multifamily deliveries are expected to cool down, with Southern metros like Houston seeing the largest declines, potentially stabilizing key apartment markets.
Urban exodus: Nationally, moving to the suburbs is still very popular among younger Americans, especially millennials, who seek larger homes and outdoor spaces.
Artistic elegance: Dasha Zhukova Niarchos and VeLa Development are collaborating on Ray Nashville apartments, a $211M project with 367 units in Music City.
Building up: EGC Real Estate Group used AB 1287 to expand an apartment building to seven stories with 224 units in LA’s Harvard Heights.
Multifamily meltdown: Freddie Mac (FMCC) projected limited rent growth of 2.7% and a 6% higher vacancy rate nationwide this year amid high supply.

🏭 Industrial

Industrial Eden: Hines secured a $120M loan from Affinius Capital after snagging a $100M senior loan from Bank OZK in June for the largest Silicon Valley industrial project, located in San Jose.
Data expansion: A Blackstone (BX) unit is ready to develop a second Arizona data center in Avondale, buying 206 acres for $246.8M, or around $1.2M per acre.
Breathing room: LA’s industrial market saw a 14.5-year high vacancy rate of 3.7%, with rents cooling to $1.61 PSF and sublease space up 11.6%.

🏬 RETAIL

Converting warehouses: Asana Partners sold a repurposed warehouse district in West Palm Beach for $19.5 million to Armata Holdings amidst ongoing South Florida retail transactions.
Doral delights: Nuveen Real Estate (JRS) and SJC Ventures purchased a $32M, 10-acre site in Doral, FL, and are planning an 89 KSF retail project.
Slimming down: Big Lots (BIG) plans to close around 140 stores nationwide, tripling its initial estimate. Most of the closures (54) will be in California.

🏢 OFFICE

Government growth: Washington, DC’s office market, is showing signs of recovery, with government returns leading the way. The city’s Q2 leasing total reached 2.1 MSF.
Bigger fortress: Fortress Investment Group expanded its office at Weir’s Plaza in Dallas, adding 20 KSF and bringing its total office footprint to 68 KSF.
Another one bites the dust: A JV surrendered its Silicon Valley office complex after the floating interest rate on $293M in remaining debt spiked to 8.5%.
Rent gap: Prime office rents exceed Class A rents by an average of 31.4% globally, with North America seeing the highest premium at 62.5%, driven by strong occupier demand for top-tier buildings.
Loan limbo: Aby Rosen secured a short-term extension to refinance the $222 million CMBS debt on 285 Madison Avenue amid rising interest rates and falling property valuations.

🏨 HOSPITALITY

Sunshine City: Developers in St. Petersburg are planning a high-end condo project with a five-star hotel brand, following trends in Miami and Tampa, to meet the rising demand for upscale residences.

A MESSAGE FROM INNAGO

Effortless Property Management, Free for All

Make property management easy and free with Innago! Our online software is designed for landlords of all sizes. Manage properties, tenants, and finances effortlessly. Create applications, screen tenants, sign leases, and collect rent. Simplify your tasks and take control of your rental business.

📈 CHART OF THE DAY

MSCI’s US Capital Trends report indicates a turning point for the commercial property market in Q2 2024. While deal volume and pricing remained steady compared to last year, challenges remain.