Schwimmer
LOS ANGELES-Rexford Industrial has been investing in and operating industrial properties in Southern California in good times and bad, so we recently asked co-founder/senior managing partner Howard Schwimmer and managing partner Michael Frankel to talk about the company’s strategy and where it is finding value-add deals today. Here’s what they had to say.
GlobeSt.com: Rexford has been around during the hottest of markets and the coldest of markets. Has the company's strategy changed along with market conditions?
Schwimmer and Frankel: Rexford’s exclusive focus on creating value by investing in and operating industrial property located in favorable infill industrial markets of Southern California has not changed as market conditions cycle from hot to cold—or from cold to hot. Our focus remains on the largest, highly fragmented segment of the industrial property market, which includes buildings sized from 40,000 square feet to 250,000 square feet and typically valued below $25 million. This enables us to pursue an investment strategy that is difficult for larger, institutional or less-focused investors to replicate. As the economy and market shifted from hot to cold over the past four years and with increasing economic distress for owners and lenders, we have evolved our strategy to focus not only on industrial property purchases, but also on the purchase or issuance of debt tied to infill industrial property that we would ultimately seek to own. We have found a substantial advantage associated with being a well-capitalized purchaser with a well-defined and market-tested strategy. This has enabled us to capitalize upon unique purchasing opportunities as the market moves through the current down cycle.
Frankel
GlobeSt.com: Where is the "add" in value-add in today's industrial infill market?
Schwimmer and Frankel: There is substantial opportunity to add value in today’s infill industrial market. Today, the “add” may comprise any or all of the following: First, utilizing our in-house originations methods, primary research and related programs to purchase off-market and lightly marketed deals at below-wholesale pricing or at values representing substantial discounts to replacement value. Second, the physical repositioning, modernization and improvement of under-utilized or mal-configured assets in infill Southern California, a 1.6-billion-square-foot target market comprised of over one billion square feet of industrial property built before 1980, with substantial opportunity to improve functionality and increase physical value. Third, the maximization of cash flow and value through professional, proactive asset and property management.
GlobeSt.com: How is the Los Angeles infill industrial market performing, and how is Rexford benefitting?
Schwimmer and Frankel: The Los Angeles infill industrial market has demonstrated steady improvement since the second half of 2010, particularly with regard to leasing activity, positive absorption and relative values or improving capitalization rates on sale transactions. These factors are generating substantial benefits to Rexford. We are focused on purchasing from stressed and distressed sellers with an increasing volume of maturing mortgages and without economical refinancing options. Consequently, we are in the position of being able to purchase at favorable low or distressed pricing with a wind at our back as improving fundamentals drive up leasing and property values through our holding period for current investments. In short, an improving market is increasing the likelihood that we will substantially exceed our investment return goals.
GlobeSt.com: What size deals are you looking for, in dollar terms or square feet or both, and in what geographic areas?
Schwimmer and Frankel: Rexford targets individual assets in the $3 million to $30 million range, typically infill industrial buildings in the 40,000-square-foot to 250,000-square-foot range. We target both single and multiple-tenant properties. We focus on properties located in favorable, high-barrier infill industrial markets in Southern California, primarily targeting assets in Greater Los Angeles, the San Fernando Valley and Orange County that demonstrate superior long-term tenant demand fundamentals.
GlobeSt.com: Why are these deals your focus?
Schwimmer and Frankel: As the largest industrial market in the US with the highest tenant demand and lowest vacancy, Rexford believes that Southern California infill markets demonstrate substantial barriers to entry, limiting development and competition from purchasers. Southern California infill industrial markets are relatively inefficient and highly fragmented with smaller properties typically owned by non-real estate professionals. This makes it extremely difficult for institutional and less-focused investors to penetrate this market. Rexford is able to operate with substantial competitive advantage due to our exclusive focus, unique in-house deal originations methods and value creation skills, extensive 30-year history and expertise in the Southern California infill industrial markets.
GlobeSt.com: What is it about current market conditions that favor a company like yours?
Schwimmer and Frankel: Ongoing economic uncertainty is driving a substantial volume of incremental opportunities as sellers and lenders face operational and financial distress. As a well-capitalized, highly-focused expert in the product type and target markets, Rexford is favorably positioned to originate and transact on opportunities. Rexford accesses the most favorable buying opportunities and off-market transactions through its unique originations methods and its extensive local presence and knowledge developed over 30 years of experience specific to Southern California industrial property markets. Conversely, it is very difficult for larger, institutional or less-focused investors to effectively penetrate these same infill markets or to purchase such deals at favorable pricing.
GlobeSt.com: How do you finance your deals?
Schwimmer and Frankel: Through Rexford’s well-capitalized REIT, acquisitions are purchased on an all-cash basis in order to capitalize on attractive investment opportunities without financing contingencies. Financing is put in place, as appropriate or as desired, subsequent to closing.
GlobeSt.com: Is your strategy to hold for the long term, or do you have planned exits?
Schwimmer and Frankel: We employ a buy-and-hold strategy on continued industrial-leased usage. The firm employs exit strategies that will produce the highest return to investors. Typical holding periods may range from two to seven years.
GlobeSt.com: What are your capital sources?
Schwimmer and Frankel: Rexford’s investors consist of high-net-worth families, charitable organizations, endowments, banks, insurance companies, pensions and other retirement funds. We work directly with investors and raises its own capital.
GlobeSt.com: Do you operate and manage your own properties, or do you use third-party management?
Schwimmer and Frankel: We are vertically integrated with in-house property and asset management, construction management, finance and accounting, underwriting and acquisitions.
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