X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

Who ever said industrial was dull? Not Michael M. Mullen, and certainly not the Australian investors who are ponying up some $392.7 million in a phased acquisition of 2.6 million sf of CenterPoint holdings. Neither does Mullen, who took the CEO chair of CenterPoint in January, see what others in the market claim to, namely a drying up in the flow of Australian funds to US plays. Not, he argues, in the midst of “almost weekly” visits by investors from down under that the original deal spawned. In a recent exclusive interview, on the heels of his appearance as a featured speaker at Real Estate Media’s recent RealShare Chicago conference, Mullen took us through the depth and the breadth of the mega-deal—forged with a joint venture comprised of CenterPoint and JF US Industrial Trust. He also talked about his focus on the Chicago industrial market (the firm’s portfolio hovers around 39 million sf) while his competitors grow globally and looked a bit into the future. One thing he would not talk about: the current dispute the firm is engaged in with former COO Paul T. Ahern, a topic of discussion shut down by a polite but undeniable “No comment.” On all other things CenterPoint, however, Mullen was quite frank, as you are about to read:

GlobeSt.com: What prompted that large a sale?

Mullen: In April of last year, we were invited to Sydney to meet a group of investors. There was an interest in industrial real estate in the US and this group had a particular focus on Chicago industrial. My partner, Paul Fisher, and I spent a week there and met probably 25 different potential investors who were interested in buying into a listed property trust. Unfortunately, right near the end of our investment tour, Westfield announced that they were merging three entities into one. Well, Westfield is so large that it sucked all of the liquidity out of that market, and it forced different fund managers to true up, to rebalance their portfolios. The deal cratered because of a lack of liquidity.

GlobeSt.com: How did it recover?

Mullen: These same people called us back later in the year, maybe in mid-November, and said that market conditions had changed there and calmed down. They arrived in Chicago in early January. The long and the short of it is that every fall we go through a process of ranking all of our assets. The Australians were looking for a steady dividend stream. That’s what their market looks for, while we’re much more focused on growth and turning assets. It’s been our recycling model since we started the company.

We had put together packages we intended to sell and put them out on the street. Then the Australians came in and gave us an all-encompassing bid wherein they acquired four of the packages plus some additional properties. They did three things that sold us. First, they gave us great pricing. Second, they had already done all of their due diligence. Third, they agreed to close in four equal tranches of roughly $100M apiece.

GlobeSt.com: Why was that key?Mullen: If we had affected this as one large sale, obviously it wouldn’t have given us the opportunity to reinvest that much capital. We were looking to balance the sales with acquisitions and developments we’re doing. To be sitting on that much cash would actually be a drain on earnings. This creates a disposition venture with an economic life of three years beyond the last closing. We’ll continue to show them a portfolio annually of at least $200 million a year as they grow their Chicago industrial investments to between a billion and a billion and a half US.

GlobeSt.com: Does this herald some sort of change in your investment strategy?

Mullen: No, our investment philosophy hasn’t changed, and we’ll continue to invest in industrial real estate in Chicago in its many forms. There may possibly be more air-freight facilities and more intermodal facilities or more large tear-downs. And we’re looking at some very large build-to-suits. You asked at the [RealShare] panel about predicting the future, and I referred to the advent of the mega-distribution center. It’s been around for a few years, especially in the Inland Empire, but it’s coming to the Chicago market, and 800,000-sf to 1.5-million-sf deals are not uncommon.

GlobeSt.com: How did you choose the assets you peeled off for the Australians?

Mullen: It’s really algebraic. Every year we put together a budget for all of our properties. It’s a very long process, but we look at each and we budget improvements and rents, and it comes down to a kind of IRR analysis. If we’ve added all the value we can, it’s time to sell, take our profits and reinvest. Some of the properties may have been brand-new and some may have been 25 years old. It’s all a matter of what the growth prospects are. As I said, our MO is different from that of the Australian investor. By the way, since we’ve done the transaction we’ve had a lot of Australian investors visiting us, and you may see something akin to what they refer to as a stapling of shares, where some of the institutions down there that bought into James Fielding USA Industrial Trust might also buy shares in CenterPoint and staple the two shares together.

GlobeSt.com: The logic being . . . .

Mullen: The logic being that they’ll get the kind of high dividend off of the JF Industrial Trust and the growth off of CenterPoint.

GlobeSt.com: So you’re seeing more Australian activity.

Mullen: Since the deal has closed, we’ve had almost an Australian group a week come to visit us. And in some cases they want to see some of the properties that were acquired but the emphasis in many of the cases has been more what CenterPoint is doing next. I do think the Australian market is very focused on investing in the US. The Australian dollar is almost at a historic high, so they have the currency advantage and the appetite. They love the real estate, and you’ll continue to see more Australian dollars reinvested in different US markets.

GlobeSt.com: That differs greatly from many predictions I’ve heard and from what was projected at the NAREIT conference recently.

Mullen: With the Australian investors we’ve met, and we met with the 35 largest, I believe their focus is very much on the US. We speak the same language and they look at real estate investments the same way we do. I think they see a safety in investing in the US. Finally, consider the currency advantage they currently have. I don’t think the dollar will stay this weak forever. If you’re buying dollar-denominated rents, as the dollar springs back it’s only going to enhance your yields.

GlobeSt.com: And clearly this transcends industrial.

Mullen: Definitely. There are other Australian groups looking at office and retail projects here. DDR and ProLogis already have Australian partnerships, and you’ll see more of them. They love L.A. and Chicago and New York, and you’ll see a focus on those three markets.

GlobeSt.com: Turning back to CenterPoint, why have you focused so exclusively on Chicago?

Mullen: The Chicago market, which includes Southeast Wisconsin and Northeast Indiana, is a 1.2-million-sf market. We’re the biggest property owner here, and we have only a 3% market share. There’s plenty of room to grow. Besides, real estate is a local business. Deals are made at Little League games and church socials—a lot of non-traditional sources. Also concentrating our buying power allows us to get very attractive construction pricing because we’re such huge repeat buyers.

GlobeSt.com: So what does the rest of the year look like?

Mullen: Development activity has really picked up. We own 3,300 acres of properties in the Metro Chicago area and 24 business parks. You have to control the land to control the deal. In a low interest-rate environment we acquired a lot of property and have gone through zoning and annexation. We’re very busy in development, and there are some very intriguing projects in the pipeline.

GlobeSt.com: So how much is the portfolio likely to grow?

Mullen: In the next 12 months, I can see us developing another three to five million sf of buildings.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

Dig Deeper

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.