Why lenders like Twin Cities industrial real estate.


Byline: Brian Martucci

Editor's note: Finance & Commerce is running an occasional series about the financing climate for various kinds of commercial real estate. Links to previous installments are with this story at finance-commerce.com.

An ambitious Fridley redevelopment project expected to take eight years is on the verge of wrapping up in five, amid growing lender enthusiasm for industrial real estate in the Twin Cities metro area.

Even as appetites cool for other types of commercial real estate, lenders are bullish on industrial, said Paul Hyde, owner of Minneapolis-based Hyde Development, the industrial project's developer. "That caution you're beginning to see in multifamily and hotels we're benefiting from it," he said.

Lenders and investors like the lower average cost of industrial projects, but they're also betting on continued e-commerce growth driving a fundamental shift from large-scale manufacturing to warehousing and fulfillment, he said, adding the trend is likely to support long-term demand for industrial real estate.

Hyde Development and Mortenson closed this August on the purchase of the final parcel in the eight-building Northern Stacks industrial park at 5101 Industrial Blvd. NE in Fridley. The 122-acre Northern Stacks property is a former Superfund site that had been occupied by BAE Systems, a defense contractor.

Lender interest in Twin Cities industrial real estate is driven by a favorable confluence of financial factors. On the demand side, explosive e-commerce growth is driving demand for "last mile" warehouse and fulfillment center space closer to end-user customers, said Murray Kornberg, executive vice president at Minneapolis-based Dougherty Funding.

Case in point: Amazon, which built a giant fulfillment center in Shakopee and recently announced the conversion of a Brooklyn Park warehouse into a sorting center. Brooklyn Park is also weighing a proposal from Scannell Properties to build a 2.56 million-square-foot fulfillment center, which for now is being called Project Hotdish. Amazon hasn't confirmed it's the retailer involved, but has said it frequently scouts for sites.

Each $1 billion increase in e-commerce sales requires 1.25 million square feet of additional distribution space, according to CBRE research.

With e-commerce accounting for 9 percent of total retail sales in 2017, "there appears to be a lot of runway left for online retail growth," said Hyde.

Hyde accelerated the planned eight-year redevelopment...

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