Thank you for sharing!

Your article was successfully shared with the contacts you provided.

chi_ericogden.jpgCHICAGO-Despite the credit crisis and a continuing pricing disjunct between sellers and buyers, HSA Commercial Real Estate managed to purchase nearly one million square feet of industrial properties since Labor Day. But Eric Ogden, senior vice president of the Chicago-based firm’s acquisition division, says the buying binge appears unlikely to be repeated in the current quarter.

“We had a little flurry of acquisition activity, but a lot of those deals surfaced before things got so dire,” he tells GlobeSt.com. “Sellers who were committed to selling made themselves apparent in the third quarter, but since then, I’ve seen sellers back away a little.”

The most recent acquisitions included, a 192,500-square-foot warehouse-manufacturing property in Sturtevant, WI, 28,680-square-foot warehouse in Woodstock, IL, 28,680-square-foot warehouse in Channahon, IL and two warehouse-distribution buildings in Memphis totaling 680,000 square feet. All the buildings were fully leased at the time of sale. In addition to the acquisitions, the company recently broke ground on two industrial buildings totaling 448,610 square feet in Mt. Pleasant, WI. The facilities, including one of the region’s first LEED-certified warehouses, constitute the first phase of HSA’s seven-building Park 94 at Mt. Pleasant.

According to Ogden, HSA’s 2008 acquisition volume is off about 50% from last year, but he attributes only a portion of the falloff to the current year’s more challenging market conditions. “Part of what happened last year was driven by having a lot of 1031 money,” he explains. “We were more aggressive than we would have been with fresh money. We could afford to buy at a little bit less of a premium than we would ordinarily.”

In contrast to what rival firms are experiencing, Ogden says the credit crisis has not made financing difficult. “We have very good access to debt,” he notes. “We enjoy relationships with banks across the spectrum, from a local bank that will do a maximum $2 million loan up to regional and national banks that can accommodate any size loan.”

But he acknowledges lining up equity has become more challenging, especially since the October meltdown. “Where equity investors would tolerate a low double-digits return in September, expectations on returns are higher now. They have to be in the high teens for the equity money to want to plunk itself it down. Sellers are saying they’ll sell at a sub-8.5 cap, which allows 12% cash return, but the equity we’re talking to wants 15-20% instead. That’s making it harder to get deals done right now.”

Nonetheless, HSA chairman Jack Shaffer says the firm plans to continue its strong acquisition and development pace, with several more announcements to be made in coming months. “Our acquisition arm continues to see opportunities as we further add to our portfolio,” he comments. Ogden reports he expects to take two properties into contract around the end of January and has a couple more in early negotiations. “We’re trying to get pricing we think make sense, but the last deals remain to be consummated,” he says. In general, he continues, HSA looks for buildings that “make sense on price per pound, are priced below replacement cost, have a market worthy tenant signed and are widely marketable to a broad spectrum of tenants.”

Ogden is uncertain whether the Q3 acquisition flurry represents an anomaly or a trend. “We’re seeing a lot of movement from sellers backing away from the table,” he says. “If they don’t have to sell, they’re saying, let’s wait for cap rates to come back down a little. But if the negative outlook continues, I think a lot of those sellers might return.”

At the same time, he adds, he’s been hearing that many equity sources are sitting by the sidelines in anticipation of distress sales. “I don’t know if it’s going to happen,” he says. “The last go-round, buyers were better capitalized. I don’t know that too many of them are going to end up in trouble with their lenders.”

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
  • 3 free articles* across the ALM subscription network every 30 days
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

Dig Deeper


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 © 2020 ALM Media Properties, LLC. All Rights Reserved.