Prologis Inc. recently announced that it intends to buy logistics-property owner DCT Industrial for $8.4 billion as demand for warehouses and distribution centers continues to rise. SoCal Real Estate looked into Prologis’s involvement in the SoCal market and how the acquisition might impact this region.
Of the 424 million square feet of space in 2,391 buildings in the two firms’ combined portfolios, the greatest percentage of NOI — 23 percent — is in Southern California, 10 percent is in New York/New Jersey, 10 percent is in San Francisco, 8 percent is in Chicago, 6 percent is in Dallas, and 5 percent is in Seattle. The space owned and managed by each is similarly occupied, at roughly 97 percent filled.
“We continue to push into the urban core, where consumption is rising fastest, and our market presence in Los Angeles and the Inland Empire speaks to this fact,” Kim Snyder, president, West Region, for Prologis, tells SoCal Real Estate. “In fact, Southern California is the largest market for Prologis.”
Snyder says the greatest opportunities for industrial development in this region are infill development and redevelopment. “We are commencing projects this year in Vernon and Long Beach and are planning additional redevelopment plans on projects in Los Angeles, Carson and Compton subject to entitlements.”
Snyder adds that following the acquisition, Prologis plans to continue to invest in SoCal, and the deal “underscores our attraction here. Prologis owns and manages 73 million square feet of logistics real estate, whereas DCT owns 12 million square feet. The combined portfolio will be impossible to replicate. It should be noted that the DCT assets overlap and complement our existing position, affording further growth to our existing logistics clusters.”
This deal is all about strategic fit and scale, according to Snyder. “For some time, we have considered DCT’s realigned portfolio to be the most complementary to our own in terms of product quality, market position and growth potential. DCT’s portfolio has a 100 percent overlap with Prologis markets. This high level of strategic fit will enable us to capture significant scale economies immediately.”
The deal also presented a rare opportunity to acquire one of the highest-quality industrial portfolios in the U.S. It “deepens U.S. presence in high-growth logistics markets, with favorable demand fundamentals and growth trends, and expands relationships with large, repeat multinational customers, while adding over 500 new customers,” Snyder says.
With the acquisition, the combined firm is well-positioned to take advantage of identifiable and future synergy opportunities, he adds. In the near term, these include corporate overhead, operating leverage, and cost of capital synergies. Future opportunities include revenue synergies, and incremental development volume.
Meanwhile, the Southern California CRE market is reacting to the news. Colliers International’s senior EVP John DeGrinis, a veteran industrial broker and recent past president of SIOR, tells SoCal Real Estate, “The big get bigger,” adding that the genesis of DCT consisted of ex-Prologis executives. But he doesn’t think the merger will have much impact on the SoCal market. “When ownership controls the market, things can change, but the industrial real estate playing field is wide open. Most of the product, in terms of mass, is located in the Inland Empire — mostly larger distribution-oriented type stuff — and the market is pretty tight.”
DeGrinis points out how difficult it is for industrial investors to acquire assets or buy land and develop them because both assets and land are in short supply in most SoCal markets; therefore, this merger makes sense. “With the amount of capital these entities have available, it’s not surprising that Prologis acquired a company that does what it does. It’s an accretive move and a very good match relative to the types of assets it controls.”