While covid-19 has put real estate transactions around the world on pause indefinitely, not all market participants are viewing it as a reason to panic. Robert Fordi, chief executive of Realterm Logistics, told PERE the crisis could actually boost his firm’s latest business plan.
The Maryland-based manager closed its first European fund, Realterm Europe Logistics Fund, on €100 million last month. Fordi said the vehicle, which finalized its first acquisition on March 31 and is nearing completion of a second deal, is on track to meet its deployment deadlines despite the upheaval, potentially ahead of schedule. “This fund was sized to have 12 to 18 months of capital, and that time frame is still realistic,” he said. “It could even be accelerated because of the market dislocation.”
RELF hit its hard-cap, with capital commitments from public pensions and endowments. It is Realterm’s ninth fund and the first to target a value-add strategy outside the US. Fordi said the fund will target “high-flow-through” logistics assets, smaller warehouses that service as transfer points for goods and facilitate last-mile deliveries.
Realterm’s first European acquisition was a 107,600-square-foot facility near Brussels Airport in Belgium. While securing debt has become a greater challenge for some investors during the coronavirus crisis, Fordi said his firm can draw from strong credit lines as well as access single-asset financing through the insurance debt capital market. In general, he said the firm does not rely heavily on external financing, capping its loan-to-value ratio at 50 percent.
Realterm will wait for prices to settle before seeking new acquisitions, Fordi said. However, once the market stabilizes, the firm is comfortable executing deals and holding properties under contract until it can do site tours for final inspection. Still, he anticipates a plethora of off-market opportunities to arise from the widespread distress: “In the near term, we will likely see more deals through our asset management relationships versus broadly brokered properties,” he said. “This has been our experience in past market dislocations.”
The crisis also feeds into long-term trends benefiting the logistics manager. Social distancing initiatives have driven the demand for online shopping, particularly for groceries and other essentials. One e-commerce tenant described the pandemic-related buying surge as “every day is like Black Friday, it’s the busiest day they’ve ever had,” Fordi said.
The running assumption within the last-mile warehouse space is that steadily more goods would be purchased online in the coming decades, thus allowing owners to charge gradually higher rents in the face of growing demand from e-commerce tenants. The question, Fordi said, is how much the current crisis compresses the timeline before e-commerce reaches its maximum share of retail sales.
“The global phenomenon of e-commerce’s effect on customers’ delivery expectations and retailers’ delivery promises have been profound. The pandemic’s effect will be to accelerate a rate of change that we had always seen as offering the high-flow-through sector a 20-year-plus tailwind,” he said. “We see that [isolation] dynamic accelerating the shift.”