Big Moment in Distribution Drives Exponential Growth for Industrial Building Owners and Logistics Operators
In May, RJW Logistics announced that it had leased a new 452,000 square foot Class A industrial building in the Lockport suburb to expand its warehouse and distribution operations in the Chicago area. When reviewing the largest leases in the second quarter of 2021, RJW’s commitment to Lockport space was the largest lease along the I-55 corridor and the sixth-largest industrial lease in the Chicago area.
“Just wait for the first and second quarters of next year, and we’ll be on [the list of biggest leases] again, ”said Kevin Williamson, CEO of RJW Logistics, of the company’s large rental commitments and rapid growth in the region.
But RJW Logistics is not alone. Kenco Logistics, Dynamic 3PL, and of course Amazon, are other companies that are committed to major leases of industrial space in and around Chicago for warehousing and distribution.
The boom in industrial real estate that is occurring in the country’s major metropolises can be largely attributed to the explosion in demand and opportunities in the wider logistics arena. And the Chicagoland region is no different. On the contrary, the region’s long-standing reputation as a vital transport hub has only bolstered its logistics credentials and led to a flood of new investment as developers feverishly add new Class A industrial space to the along major interstate and rail arteries in the Chicago area.
Companies like RJW Logistics meet at a usual time; a country where the very nature of retail, e-commerce and supply chain logistics is changing at a breakneck pace. According to Williamson, the company has leased 3.2 million square feet of space since 2016 and plans to acquire an additional 500,000 to 1 million square feet over the next 12 months.
In its May announcement, RJW Logistics said its Lockport facility will serve 60 to 100 customers, handle 550,000 pallets and ship more than 66 million cases per year. And that’s just one building in its network of seven logistics facilities in the Chicago area.
And there is even more room to grow as there is still a major need for retailers to keep up with supply and demand, Williamson says. But there has also been growing competition within 3PLs.
“Recently you’ve seen a growth spurt because there has been disruption in the supply chain,” says Williamson. “Since June, we’ve seen 12% of purchase order cancellations due to lack of inventory. They don’t have enough stock to keep in our space and fulfill orders of consumer demand – this is huge because it means we need 12% more space than we actually have .
The company took a different approach to its logistics strategy by consolidating its operations and expansion efforts only in the Chicago area. This not only gives RJW Logistics a greater regional presence, but the model is really designed for peak performance, suggests Williamson.
“These buildings that we are building are organic growth that is not necessarily an expansion with the suppliers who are in our program,” explains Williamson. “These are vendors who come to us because other 3PLs are not performing at a high level and do not have the infrastructure and technology to keep up with that.”
This infrastructure, he suggests, is the model where RJW Logistics operates its own buildings and manages its own fleet of vehicles while using a single market methodology.
The model has many benefits, Williamson explains, ranging from managing last-minute staff changes between nearby facilities, meeting on-time performance standards for local customers, and even attractiveness as a tenant for industrial owners due to the number and diversity of retail customers. And because each building serves dozens of corporate customers, there are economies of scale for large and small retailers in delivering goods.
“The methodology we use for this one-inventory strategy is really proving itself through the pandemic,” he says of the business model. “We have 1,600 employees within five miles of each other, so we don’t have any interruptions in our seven buildings. “
Another entity that is looking to quickly become a regional player in the burgeoning game of distribution and last mile delivery is the Israeli company Faropoint. The company didn’t announce its first purchase of an industrial building in the Chicago area until June, but set an ambitious pace for future real estate acquisitions, said senior vice president Jordan Kovalsky, who manages the company. Midwestern region for Faropoint.
“Our first fund, launched in 2018, had purchasing power of around $ 350 million,” Kovalsky explains. “This next one, which we just launched in July, represents a purchasing power of more than a billion dollars.”
Kovalsky says Faropoint is set to close 100 assets this year, doubling what it did in 2020. The company is targeting smaller buildings, for example, the 30,000 square foot Glendale Heights Faropoint property paid 2 , $ 2 million in June or the 43,500 -a building of square feet in Mount Prospect on which the company closed its doors in August.
The acquisition of smaller buildings not only allows Faropoint to rapidly increase its portfolio, but much remains to be determined on the final aspect of last mile logistics in the years to come, suggests Kovalsky.
“If you asked what the last mile was a few years ago, it could be a 200,000, 300,000, or 400,000 square foot building, and it really pivoted to where you could see a 20,000 square foot building. square feet in the heart of Chicago, ”she explains. “They’re not necessarily shelving, but they deliver products that need to be in downtown Chicago in under 10 minutes.”
But it’s not just downtown Chicago. There is a need for last mile delivery facilities in many other suburbs and outlying towns on the inner and outer periphery, she adds.
But being the new kid on the block has its challenges, concedes Kovalsky.
“Faropoint gives us the advantage of being a good buyer, which I think helps, but those first two transactions were tough,” she says of entering the Chicago market. “With all of this increased competition, I think it’s probably pushing the prices up a bit – whether it’s justified or not, I’m not sure – but that only increases the competition on the bid sheet.”
Building inroads with the brokerage community will be key to Faropoint’s success in the Chicago market, as there is so much competition for transactions that commercial brokers may no longer have to shop for properties like they used to. previously.
“A lot of these trades were probably traded off-market before, but now the brokers are saying, well, I might as well bring [an opportunity] in three, four or five groups, just to see if I can push the prices up a bit, ”Kovalsky describes. “We probably would have bought twice as many deals by now without it, but we’re almost at a million square feet and we started buying here four months ago. “
This article also appears in the September 2021 issue of Chicago Industrial Properties.