Keystone's Second JV to Target Indianapolis

While the joint venture with an unidentified "major institution" increases the REIT's presence in the Midwest, locally based Keystone Property Trust views it as its next step in becoming a major owner-operator of industrial properties.

Nearly two-thirds of Keystone Property Trust's 20-million-sf portfolio is concentrated in New Jersey and Pennsylvania, while the 2.6 million sf in Indiana is eclipsed by the REITs holdings in Greenville/Spartanburg, SC.

The REIT would contribute its six-building Indianapolis area industrial portfolio as well as buildings in Allentown, NJ, and central New Jersey to its second joint venture. The initial contribution would be worth $90 million, Keystone Property Trust officials estimate, but the payoff is in the acquisitions, they indicate.

"It's a pretty compelling cap rate," says chief operating officer Robert Savage Jr. during an earnings conference call Wednesday. "It's a mix of assets, and the cap rate is about 9%."

Keystone Property Trust already has used its leverage with its CalEast joint venture with pension fund giant CalPERS and LaSalle Investment Management to increase its presence in the submarket near the Meadowlands. "I believe the pension fund joint venture model is good for REITs," says president and CEO Jeffrey E. Kelter.

Meanwhile, about half of Keystone Property Trust's 2.7-million-sf South Carolina portfolio is up for renewal this year. Also, the 85.8% occupancy rate at the end of the year south of the Mason-Dixon line was the worst in the entire portfolio. The properties require an inordinate amount of time, Kelter says, making them ripe for disposition later this year.