NorthPoint Development has quietly completed the sale of a majority stake in 10 fully leased Class A industrial buildings totaling about 6 million square feet.
Los Angeles-based Ares Management LLC, a global investment group with approximately $100 billion in assets under management, was the buyer in the transaction involving the 1,700-acre Logistics Park Kansas City in Edgerton, for which NorthPoint is master developer. NorthPoint CEO Nathaniel Hagedorn called it one of the largest commercial real estate deals in Kansas City history.
Financial terms were not disclosed, but one local real estate source estimated that the buildings probably were valued in the neighborhood of $330 million, which translates to about $55 a square foot and a capitalization rate of about 6.3 percent (based on an assumed effective rental rate of $3.50 a foot for the portfolio).
Assuming that the 6 million square feet of buildings were sold for $55 a foot after being developed for about $45 a square foot, the source added, NorthPoint and its original investors “took probably $60 million worth of chips off the table.”
Hagedorn said the ownership partnership NorthPoint formed to help finance development of LPKC — Edgerton Land Holding Co. LLC — also will retain a minority interest in the 10 buildings as part of a joint venture with Ares Management.
In addition, NorthPoint will continue to operate and maintain the buildings and will continue to build out the park.
‘A tremendous sherpa’
The deal was brokered by Mike Caprile of CBRE’s Chicago office, whom Hagedorn referred to as “a tremendous sherpa.”
“He helped guide us through this process and evaluate our options,” Hagedorn said. “It wasn’t a widely marketed process. Mike Caprile basically hand-picked a handful of different groups that would be right for us to partner with on this.”
Hagedorn said CBRE had advised the sellers that “LPKC is the most successful industrial park in the United States; there’s not another that’s leased more space.” As such, he said, there was very strong institutional interest in investing and partnering on the project.
Construction in LPKC began in October 2013, about the same time that BNSF Railway opened its newest intermodal facility along an adjacent stretch of the railroad’s transcontinental line through Edgerton.
By the end of this year, NorthPoint will have finished buildings totaling nearly 9 million square feet in LPKC, which has capacity for 17 million square feet of warehouse and distribution facilities.
LPKC boasts a total of 10.3 million square feet of buildings completed or under development, which Hagedorn described as “the equivalent of 240 acres under roof, which is staggering.”
“We’re well on our way toward the 17 million-square-foot buildout of the park,” he added.
‘Return some profits to the partners’
Hagedorn said the initial equity contributors to LPKC — including local high-net-worth investors such as Dave Cummings, Jim Ferrell and Joe Brandmeyer — had not planned to cash out this early. But they hadn’t planned on LPKC expanding so much, either.
“We started the project with a vision of a long-term investment,” Hagedorn explained. “But the park has expanded several times. When we originally got involved in the project, the vision was for about 10 million square feet, and we’ve subsequently added more and more land that’s allowed us to grow the park to closer to 17 million square feet.
“We don’t borrow money on land; it’s all cash. So there’s a significant level of investments that our partners made, and they’ve been very patient. But any time you have a chance to take some chips off the table and return some profits to the partners, it’s always a good thing.”
Hagedorn noted that NorthPoint could have created a liquidity event for its investors by just selling off a few buildings. But entering into a joint venture with Ares allowed the developers to accomplish more than simply paying off investors receiving “entrepreneurial” returns with institutional capital.
“More importantly, it allowed us to maintain a single, steady hand over the continuation of the park, which allows us to continue to provide the right service to our tenants,” Hagedorn said.
From a tenant standpoint, the recapitalization should create no change, he added. That means LPKC will continue to offer flexibility for expansion, which three tenants took advantage last year, growing by a total of 1.3 million square feet within the park.
“We have sticky tenants because they save millions of dollars from being co-located with the intermodal,” Hagedorn said, “and now we’ll have UPS there.”
He was referring to the recently announced 197,000-square-foot distribution center that UPS, in collaboration with NorthPoint, is developing in LPKC.
“We really believe in the asset long term,” Hagedorn said, “and so this recapitalization and joint venture allowed us to bring in the sort of patient, long-term capital partner that Ares is so that we can maintain the entire park together.”
– Rob Roberts
Kansas City Business Journal
Date: July 26, 2017
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