Industrial assets are the new favorite among net lease investors, but this tremendous opportunity has also been accompanied by fierce competition. There has never been so much capital competing in the sector as there is today. Industrial transaction activity in the United States has grown from $ 28 billion in 2011 to $ 100 billion in 2020, just to paint a picture of the growth in activity.
To curb competition, Bridge Investment Group has organized a differentiated acquisition strategy, which focuses on lower to mid-market products with institutional grade ownership. During the same period of growth, from 2011 to 2020, lower-to-mid-market transactions accounted for only 25% of transaction activity, totaling $ 23 billion.
Matt Tucker, Partner and Co-Chief Investment Officer at Bridge Investment Group, spoke about the company’s investment strategy at the recent GlobeSt.com Net Lease conference and outlined its four-pronged strategy, which aims to generate value through asset management.
Starting with location, Bridge buys in major growth markets for less than $ 50 million, but more specifically in the $ 10 to $ 25 million range, which the company calls a “sweet spot.” He looks for offers to buy below replacement cost and the strategy favors alternative types of offers, such as sale-leaseback or tailor-made forward purchases. Tucker added that the business bog and high quality assets that support tenant operations.
Despite playing in the lower to mid-market realm, Bridge still uses institutional underwriting standards and tenant credit on its acquisitions as a way to optimize the risk-return profile, according to Tucker. This includes targeting properties with strong, long-term leases and built-in rent increases. However, in order to optimize returns, the company has a diverse portfolio of institutional grade tenants and unrated tenants with strong financials in growing industries.
Bridge generates value through asset and portfolio management, which includes a “proactive approach to asset management, tenant engagement and credit risk monitoring,” Tucker explained in his presentation.
The company plans to deploy more than $ 1 billion annually to acquire industrial properties as part of this strategy. This year he has $ 500 in equity ready to buy new deals. The company managed to maintain a 95% occupancy rate across its entire portfolio, even during the pandemic, an average annual default rate of 0.04%, and an annual renewal rate of 80%.