"Industrial has held up relatively well considering everything that's going on in the credit markets, but there's no question there's been a slowdown in the past 60 days," says Real Capital managing director Dan Fasulo. "The story is worse for other property types, but industrial has also taken a hit."

Estimating that CMBS financing accounted for 25% to 30% of sales last year, Fasulo attributes the recent falloff to the collapse of the that market. "Industrial portfolio sales have really driven the marketplace over the last couple years," he notes, "Many of these were financed by the CMBS marketplace, which for all intents and purposes no longer exists. In fact, there wasn't a single CMBS issue in January. We're going to need the CMBS marketkplace to come back for investment to come back."

The trend is evident across all regions, but pricing, if not necessarily volume, has stayed stronger in some markets than others. "Prices have held better in places where supply and demand dynamics are out of whack," observes Fasulo. "In California and the Northeast, where there's such a lack of supply and so much demand, mostly generated out of the ports, prices has held relatively firm, versus the middle of the country, where prices have softened."

The sales downturn appears to have resulted from fewer deals attempted rather than deals falling apart. "There was a spike of deals falling out of contract immediately after the credit crunch," the analyst tells GlobeSt.com. "But that has started to temper because for any new deals that are occurring, buyers and sellers are going in under the banner of the new paradigm. All the credit-crunch factors have been built into the deal from the beginning."

Apart from the greater difficulty in obtaining credit, the primary cause of the slowdown, he continues, is a disconnect between sellers' expectations and buyers' realities. With leasing market fundamentals still relatively strong as evidenced by stable or rising rents and declining vacancies, Fasulo says existing owners are opting to hang on properties. "They're telling buyers, if you can't get me the price I need, I'm just going to pull my property from the market and try to sell at a later day," he remarks.

According to Fasulo, the composition of the buyer pool differs significantly from last year, with the equity funds, private investors and other highly leveraged investors that dominated the scene in early '07 gone and pension funds and REITs now in the forefront. In coming months, he says, we can expect more investors to look outside the US for opportunity. "The longer there's uncertainty about the US economy, the more you're going to see US players look for alternatives elsewhere. Major pension funds had already been planning on reallocating more of their portfolios internationally. The uncertainty is only going to speed that up," he predicts.

Despite the current status, Fasulo remains very bullish on the US industrial sector, especially in supply-constrained markets on the coasts. "Too many investors talk about the US as if it's one place," he points out. "But industrial is much more local than people realize. There will be great opportunities over the coming year, but investors will have to do homework in the local market they want to invest in. Those who do their homework will be amply rewarded. Those who don't will pay the price."

Instant Insights /

Industrial Sales at Lowest Level in Nearly Four Years

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