Business & Investment

From housing complex to industry: Wharton Equity Partner Success Story

Peter Lewis, Chairman and President of Wharton Equity Partners. Image courtesy of Wharton Equity Partners

Since its founding in 1987, Wharton Equity Partners and its affiliates have been involved in over $ 2 billion in transactions. The company has built up experience across a variety of business cycles, strategies, and real estate types, including home development for sale, self-storage, condominiums, and more recently industry.

Peter Lewis, Chairman and President of Wharton Equity Partners, talks about the company’s move to the last mile distribution sector, the opportunities and challenges posed by current market conditions, and how technology can further transform the sector.

What motivated you to diversify your investment strategy and focus on industrial assets?

Lewis: Wharton has always been proud of his ability to look at the broader themes of the market and identify rising opportunities. As a result, it became clear that e-commerce was becoming more powerful and influential in 2017, and from our point of view, we realized that it could make a big difference in the industrial sector. Recognizing this as an important opportunity, we have leveraged our 30 years of experience to quickly move to an asset class that has been very successful for the company.

Read again: Industrial sales exceed 2019 record

The pandemic has accelerated the demand for industrial products. As a result, how much has the capital allocation to this type of project increased?

Lewis: When we decided to start investing in the industry, we saw it as a major transition and invested almost all the resources of the time into this sector. To raise capital for a successful shift, we sold all apartment assets (a total of nearly $ 500 million at the time). Today, Wharton has completed over $ 400 million in transactions in this area and remains our main focus.

How much of the increasing demand comes from last mile logistics and how much is it from the construction and home remodeling industry and more local businesses for health care?

Lewis: Industrial evolution divides the market between traditional localized manufacturers that have traditionally filled many warehouses across the country and the vast network of last mile distribution centers that are essential for large e-commerce suppliers. Did. As these e-commerce companies continue to grow exponentially, the need for real estate is causing an extreme shortage of supply in the industrial market. This still does not undermine the role of traditional industrial manufacturers that operate most of the industrial real estate nationwide.

However, the decline in the amount of real estate to meet the increasingly complex demands of today’s distribution giants such as Amazon has created a complete storm of rent increases resulting from limited supply and surge in demand.Overall, we can see it Industrial rents are rising and vacancies are declining As a product of this phenomenon.

How do you compare the future outlook for industrial asset types with other asset types?

Lewis: Industrial has a completely unique position in commercial real estate and is now well-positioned to significantly outperform other traditional asset classes. Reasoning listens to its vast potential for rent growth.Tenants due to lack of supply to meet growing demand for e-commerce tenants, who account for most of the surplus industrial real estate You have to pay more and more rent For a space that suits their needs. Warehouse space rents have already risen astronomically, sometimes over 30 percent.

The SoPhi Logistics Center in South Philadelphia is one of our recent projects. What was the most difficult part of this development and what worked?

Lewis: When we first began to consider the development of the SoPhi Logistics Center, there were some clear challenges to overcome. Most important of these was the fact that the city of Philadelphia had never done this before, so there was no actual reference point for the project in terms of rent and tenant type. In addition to this, the previous site was in a completely devastated state.

Despite these challenges, the value of the place was clear. It was really the perfect place for a warehouse / distribution center. Located near the Philadelphia city border, with easy access to major transportation routes to and from the city, and close proximity to airports and ports, it was ideal for large e-commerce companies targeting tenants. Most importantly, it was possible to reach a population of over 4 million within 30 minutes by car.

Similarly, we found that there was an unparalleled amount of parking, which was further expanded through construction and partnerships with the city. Finally, when the property was completed, it was fully leased to Amazon.

Read again: Is there a CRE labor crisis? Insights from CPE100

What kind of technology and tools are becoming important to the performance of industrial assets, and what’s next for robotics?

Lewis: Technologies that drive the future of automation generally fall into two major comprehensive categories: automation and robotics. Developments that are beginning to evolve in these two areas have the potential to significantly transform warehouses and the broader supply chain in a myriad of ways.

Starting with automation, new Advances in artificial intelligence Create a much more efficient model for warehouse operations and product distribution. We are rapidly approaching the stage where internal and external logistics are overwhelmingly processed by automated processes. Using artificial intelligence in an inventory management system to manage assets in a warehouse is very popular because it allows you to plan the most efficient routes for your products as they move through the building.

Similarly, with the widespread adoption of self-driving cars, we will be able to see the automatic routes of self-driving cars determined by artificial intelligence. Whether it’s a self-driving truck that distributes Amazon packages at someone’s home, or an automatic forklift that manages storage in a warehouse.

Robotics also plays an important role in the future of industry. It’s not hard to imagine a future in which the supply chain is fully automated and managed without human hands touching the product. As robotics techniques become more accurate, they are implemented to replace much of the tedious labor that occurs in warehouse settings. These technologies will be used in the future for packing, sorting and loading parcels for distribution. The value proposition of this type of efficient self-managed machine becomes more attractive as labor rates and inflation push up the costs of industrial employers.

What is your outlook on the industrial market, especially warehouses and distribution spaces? Which region offers the best opportunity?

Lewis: Overall Forecast of industrial real estate Is very promising, but the same paradigm that is changing the internal labor and planning structure of industrial property also changes the dynamics in which the market is valued. Currently, the most valuable markets are generally in coastal states. This is due to the high overall population and density of coastal cities and their surrounding areas, providing excellent space for industrial investment.

But we are already seeing new markets becoming more prominent. More inland cities, such as Nashville, Tennessee, Phoenix and Denver, are also growing their industrial markets, primarily due to population growth. Conversely, the northeast does not show the population growth seen elsewhere, but remains very important to the sector due to the incredible demand from rising incomes. I understand.

With the advent of automation and artificial intelligence, there is a major shift in the desire for industrial products in various regions that are currently impractical. The largest industrial players are already aware of this, as Amazon has stated that it will eventually deliver same-day delivery anywhere in the country. This is a lot of work at the moment, but as self-driving cars and fully automated warehouses with closed circuits become a reality, the doors for developing warehouses in isolated rural areas will open. The distance these vehicles are likely to travel in the presence of significant charging or refueling infrastructure completely changes the location element of the most profitable industrial ventures.

From housing complex to industry: Wharton Equity Partner Success Story From housing complex to industry: Wharton Equity Partner Success Story

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