By Jon Peterson
San Francisco-based Prologis is expecting to achieve a 5.5 percent cap rate on the 322 industrial properties that it is in the process of buying from New York City-based KTR Capital Partners, according to a document received from Prologis. This return is based on the property’s current net operating income.
Prologis believes the industrial markets in the United States in general have not reached their peak from a rental rate standpoint. “We have a view that industrial assets should see three more years of strong rental rate growth in the markets that we operate in,” says Eugene Reilly, chief executive officer of Prologis Americas.[contextly_sidebar id=”tVODAztyfy3fdCVTDmQn4o8gpy7aoxKM”]KTR Capital did not respond to phone calls or e-mails when contacted for this story. The sale of the properties and the operating platform of KTR is expecting to close in the next 30 to 60 days.
At this time it is not clear what will be the future of the current employees of KTR Capital. “When the transaction with KTR is closed, we are not obligated to keep any of their current employees. The transaction does provide the opportunity to recruit from an organization I consider to have one of the most talented teams in the business,” said Reilly.
The assets that Prologis is buying are located in many markets that Prologis is already exposed to. “The assets are highly complementary and represent a 95 percent overlap with our existing U.S. operating portfolio,” said Reilly.
The portfolio in the U.S. currently held by KTR totals 60 million square feet. This portfolio is 89 percent occupied and has an average building age of 18 years. There also is 3.6 million square feet of development-in-progress and land with a build-out potential of 6.8 million square feet.
KTR does have some exposure in the San Francisco Bay Area. This would include 1.6 million square feet of existing space in the East Bay and 293,922 square feet in the South Bay, according to KTR’s Web site.
The real estate assets of KTR will be acquired by the Prologis U.S. Logistics Venture. This is a joint venture with Norges Bank Investment Management, manager of the Norwegian Government Pension Fund Global.
This pension fund has a 45 percent stake in the venture and will be investing $2.6 billion into the transaction with KTR capital. Prologis owns the other 55 percent stake in the USLV venture. One part of its investment with KTR will be issuing up to $230 million of operating partnership units to KTR.