FLORHAM PARK, NJ—2015 was a 'watershed' year for foreign investment in US industrial properties, and New Jersey is front-and-center in investors' crosshairs, says Michael Nachamkin, managing director of Holliday Fenoglio Fowler.

"From a diversification point of view, most of these investors want to be in the major markets, and New Jersey is in the top five," Nachamkin tells GlobeSt.com exclusively.

Across the United States, total foreign investment increased from $12.5 billion in 2010 to more than $76.6 billion in 2015 so far.  New Jersey captures approximately two percent of this market share in the United States with year-to-date 2015 foreign investment hitting $2.1 billion, Nachamkin says. 

"This is a more than 510 percent increase from the $344 million invested by foreign capital in New Jersey in 2010, no small feat considering New Jersey is considered one of the top tier US Core Markets and continues to be one of the most difficult states with many barriers to entry," he says.  The most active foreign investors in the state in 2015, according to RCA, were Canada, China, Norway and Singapore.

While foreign sources invested in a variety of asset classes across the state, industrial was the most popular, with an impressive $1.733 billion inflow of investments through late 2015. 

"Much of this volume was fueled by 'mega deals' in the industrial sector, large M&A transactions that were national in scope," Nachamkin says.  "These transactions also contributed to industrial investment leading the pack nationally with 5.93 percent of the market share year to date for foreign investment."  

Some of the larger transactions involving foreign industrial investment were the acquisition of IndCor, an industrial platform created by Blackstone, by Global Logistics Properties for $8.1 billion.  After the acquisition, Canadian investors invested with GLP, a Singapore listed company, for a 10.6 percent stake valued at $350 million in the portfolio.

"While they [IndCor] were an operator, their goal was to take advantage of market pricing, so three years ago, they were buying assets at a discount," he says. "Then the market recovered and they were able to monetize and make significant profits over those four years. GLP had the government of Singapore behind them and other foreign investors, and they are an operator, so when they bought IndCor, they weren't buying it to buy an $8 billion portfolio and two years later flip it. They're long-term holders of industrial assets."

Shortly thereafter, Prologis acquired KTR Capital for $5.9 billion.  This acquisition was a joint venture between Prologis and Norwegian bank Norges Bank, and was the second time that Prologis has acquired all the assets from KTR, Nachamkin says.

Exeter Property Group, Plymouth Meeting, PA, sold its industrial portfolio to ADIA, the vehichle of the Abu Dhabi Investment Authority, in a joint venture with Qattar firm PSP Investments, for $3.5 billion, Nachamkin says.

"New Jersey, in terms of assets, changed hands to Middle East, Canadian, or Norway," he says. "They are some of the largest sovereign wealth funds in the world. These investors are diversified into all product types, and industrial was an asset type they were way under-allocated in, and it was a very good time to get into it. It's a stable product, it's kind of like the bottom of the food chain. You need to have industrial properties and warehouses to support an economy. They're necessary, as opposed to office buildings, which you may or may not need. The yields are good, they have high occupancy rates, they cost less to let, and they needed an allocation."

Portfolio owners of industrial property now need to consider foreign capital in terms of pricing, Nachamkin says. "It's competing with domestic capital, US pension funds and institutional investors, so globally, they're all competing now," he says. "This was kind of a watershed year for global investors buying US industrial."

Smaller industrial operators can expect more pressure to consolidate, he says.

"Smaller publicly held REITs will be going private again," he predicts. "Last year, there was a major consolidation of industrial owners that had a dramatic effect on the New Jersey industrial market and the diversification of capital sources.  What remains are very substantial privately held owners that may or may not be considering their longer term strategy given the aggressive capital markets."