Industrial Remains Cautiously Bullish

LOS ANGELES—Industrial investors at yesterday's RealShare Industrial West conference in Long Beach were cautiously optimistic about the year ahead. "We are cautious about a possible recession. We think the fundamentals are good, but we aren't going to keep our head in the sand," Don Ankeny, president and CEO of Westcore Properties, said on the Investment Leaders panel.

The Investment Leaders panel included moderator David Stone, partner at Allen Matkins, and speaker Michael Boss, director of global real estate at TIAA-CREF, and Alan Carmichael, VP of investments at Alere Property Group. The remainder of the panel agreed that the cycle is mature, and while there is still opportunity, they are cautious. "No one is immune to downturns. We are affected by the global economy," Boss added to the discussion.

As a result, the panelists were focused on very specific primary markets. "Our capital source is very focused on primary markets and markets that have an advantage," said Carmichael. "We have focused our Southern California business to OC Los Angeles and the Inland Empire. I think it is safer to be in those markets rather than going out to Phoenix or Vegas. We aren't jumping into those at this point." The other two panelists are also focused on primary markets, especially infill properties where you can get away with a lower quality product, class-B or even C assets, because the vacancy rates are so low.

For Boss and Carmichael, holding for a long term is key to their business plan. "We are long-term holders, and so we are staying true to that cycle," said Boss. "We do note that the cycle is mature, and we aren't going to be immune in the 12 markets that we pick. We are going to stick to the plan and hold our assets for long term cash flow.

Boss also noted that there is more discipline in this cycle than in the last cycle, and that will mitigate the severity of a downturn. "Discipline is key. We will hopefully find deals this year, as we did last year, but we are buying at what I call wholesale prices. We are finding value in over leased markets," adds Carmichael. "We can ride that out for three to four years. That is what we did last year, but the space has gotten a lot more aggressive. We will probably ride out the cash flow this year, but we likely won't be as active."

In the end, all of the panelists felt there was some runway left in the cycle, although Ankeny said that things were getting "frothy," and said we are likely in the seventh inning stretch. Boss agreed, but said that some outlets, like Green Street Advisors, have called it the ninth inning.