John McCloud is editor of Industry Property Journal, from which this article is excerpted.

San Francisco—AMB Property Corp.'s $181 million acquisition of a 2.1 million-sf portfolio of 25 modern airfreight buildings at three US international airports adheres to the Northern California REIT's strategy of focusing investment on markets benefiting from explosive growth in global distribution. It also reflects the company's preference for infill locations that limit options for competition from other developers.

The purchase, by the company's AMB Institutional Alliance Fund III, encompasses properties serving the Seattle-Tacoma International Airport, Dallas Fort Worth International Airport and George Bush Intercontinental Airport in Houston. The deal also includes 59 acres of developable land adjacent to the Houston airport and 72 acres in Atlanta being held for sale.

The sale price includes the assumption of $68 million of debt and the issuance of $64 million in operating partnership units in AMB Property II LP at $56.32 per unit. The seller's name was not disclosed. The properties are all located within 1.5 miles of the respective international airports, a distance AMB senior vice president John Meyer calls critical for this type of product. "They have to be within a five minute drive time of the airport," he explains. "Freight forwarders want to be able to accept goods as late as possible before a flight, so proximity to the airport is essential for their business."

The facilities, designed primarily for freight forwarding, are highly specialized. Meyer says standard distribution buildings do not work for air cargo because of the need to get goods in and out with minimal delay. He describes the typical freight-forwarding structure as long and narrow, with cross docking that allows cargo to be pushed in one door, broken down quickly, then pushed out another door on the direct opposite wall. Interiors are clear of structural columns for greater efficiency and flexibility, but they include mezzanine space for offices. Office space accounts for 15% to 20% of airfreight building sf, compared to about 5% for ordinary distribution buildings, Meyer says. Freight forwarding companies, customs brokers, regulatory agencies and related businesses rent the offices.

A second category of buildings in the portfolio consists of on-tarmac facilities, the even more efficient structures situated on airport property. Meyer says the number and size of such structures are determined by the amount of cargo the airport handles, with about one sf of on-tarmac building space for every metric ton of cargo handled annually. The amount of nearby freight-forwarding space required is approximately four sf for every metric ton brought through the airport.

In Meyer's opinion, the nation's international terminals face a growing shortage of cargo facilities because of about 6% annual growth in airfreight traffic. In addition, where traffic from Asia, the major source of increase, used to come almost exclusively through West Coast airports, the extended reach of newer planes allows them to carry cargo to the middle of the country and in some cases all the way to the East Coast.

Meyer says Dallas in particular is profiting from the opportunities offered by the newer aircraft because it has become a primary hub for international passenger travel. Contrary to popular perceptions that most freight is shipped on specifically designated flights, Meyer explains that 50% to 70% of international airfreight is carried in the hold of passenger jets. Dallas' more central location relative to Los Angeles also increases its attractiveness to freight forwarders. The newly purchased portfolio includes 15 facilities totaling more than 1.2 million sf immediately north and west of DFW, increasing AMB's Dallas holdings by 28% to approximately 5.5 million sf.

However, Seattle and Houston are also experiencing growth, Meyer adds, because of the relationship between their air and seaports and quicker access to certain markets than provided by Los Angeles. In Seattle, AMB expanded its Seattle area presence to approximately 8.8 million sf with the addition of a 137,000-sf air-freight facility directly adjacent to SeaTac. It added 913,000 sf in Houston, to bring its airport-related holdings there to 1.3 million sf.

Instant Insights /

Air Freight Growth Behind AMB Buy

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