Retail evolution driving industrial growth across the Gulf South
Here’s one more thing to blame on the millennials: (We) are spurring the evolution of retail into high-tech industrial distribution centers with the click of a finger.
It’s no secret that the retail industry is changing. The prolific growth of e-commerce and technological advancements are shifting consumer shopping behaviors, especially among the sizable millennial population. Anything and everything can be ordered online, and retailers are racing to deliver products to the customer in the fastest, most cost-efficient manner.
The industrial real estate sector is a direct beneficiary of this push to improve supply chains and get closer to customers. In the last eight years, Amazon has built nearly 100 million square feet of distribution centers across the country, with more than 90% of the U.S. now within range for next-day delivery.
Demand for industrial and warehouse space is continually increasing as goods need to be manufactured, stored, sorted, and distributed to meet the insatiable appetite of online consumers. However, today’s complex e-commerce operation requires more sophisticated industrial space than we have seen in the past. Building types and uses have shifted into more modern, technologically advanced facilities to serve as inventory and fulfillment centers. Some more extensive corporations require vast networks of warehouse space, all resulting in the tremendous potential for industrial assets.
This growth is undoubtedly influencing new development in the sector, but recovered assets are also playing a large part in the supply solution. According to a recent study by CBRE, more than 1 billion square feet of modern warehouse space has been constructed within the last decade, which only accounts for 11 percent of the total U.S. inventory of roughly 9.1 billion square feet. Nearly 1 billion square feet is more than 50 years old—consequently, a large portion of the supply is outdated and inadequate.
High-tech logistics and fulfillment facilities can be used for adaptive reuse of properties and help to backfill large blocks of retail space left vacant by big-box stores. Last fall, Stirling Properties facilitated the 1st to market standalone Walmart pickup location in the greater New Orleans area. The grocery concept renewed a shuttered bank building to include a roughly 4,000-square-foot, 2-story distribution facility. The recent closure announcements by Toys R Us, Kmart, and Winn-Dixie stores in our area could present further backfill opportunities for industrial real estate needs.
Another essential factor in the industrial market surge is location, although not necessarily in the prime market areas that you would expect. Centrally located facilities with proximity to various intermodal transportation options are key. Industrial markets here in the Gulf South are performing exceptionally well given the access to burgeoning port cities such as Mobile, New Orleans, and Natchez. Large corporations—like Amazon, Walmart, and FedEx—are starting to take notice of our region and utilizing our ports, air, and rail systems to transport goods. Surrounding infrastructure, warehouses, and properties are experiencing substantial demand.
E-commerce suppliers—including Amazon—and many other expanding companies are starting to focus their attention toward the southeast U.S., an area that has been widely overlooked in the past. This sweet spot, known as the “Golden Triangle,” is said to be currently producing one-half of the U.S. annual gross domestic product and is quickly becoming America’s new supply chain. Further, it’s estimated that 70% of the country’s population now lives east of the Ohio and Mississippi Rivers. Companies would be smart to consider expanding their operations and supply chains this way.
Aside from e-commerce, we also see massive growth in technology, auto, aerospace, manufacturing, and logistics companies in our region. Recent examples include significant development of Airbus and Austal in Mobile, AL; SSAB steel mill relocated its headquarters from Chicago to Mobile, AL; the arrival of a new Toyota manufacturing plant in Huntsville, AL; Continental Tire is constructing a tire manufacturing plant in Clinton, MS; and, of course, the recent expansion of DXC Technologies in New Orleans, LA—just to name a few. Earlier this year, Stirling Properties announced development opportunities for Bilten Park, a 6,031-acre site that has been designated as Louisiana’s #1 megasite for future advanced manufacturing and logistics.
The southeast, and more particular, the Gulf South is well positioned to support growth in the industrial and warehouse sector on all fronts. The value and demand for commercial property are not slowing down; tenants are still seeking space. As the rise of online retailing continues, we remain optimistic that the performance of industrial assets will continue well into the future. And as the millennial population continues to mature, (our) buying power will only increase, driving even more massive growth in e-commerce and industrial demand.
Commercial real estate professionals have a pivotal role to play in the new era of industrial real estate. But taking advantage of new and unique opportunities requires in-depth market knowledge, as well as sophisticated market research, and an understanding of current factors driving corporate site selection. We need to think outside of the box and offer creative solutions in today’s rapidly evolving real estate industry.
PitStop Carwash Expanding In the Gulf South
Stirling Properties commercial real estate company is pleased to announce that PitStop Carwash is expanding its presence in the Gulf South market with the addition of two new locations. Andrew Dickman, Stirling Properties Sales & Leasing Executive, represented PitStop Carwash in securing both properties.
(Facility rendering courtesy of PitStop Carwash)
PitStop Carwash is set to open its 4th location at 457 Highway 90 in Waveland, MS. The grand opening of this facility is scheduled for May 10, 2018.
The company also recently purchased 1.5 acres of land at 809 Fairhope Avenue in Fairhope, AL, for development of its 5th carwash location. Anticipated opening is scheduled for January of 2019. Philip Hodgson with Coldwell Banker Reehl Commercial represented the seller.
“PitStop Carwash is excited to add new locations to Waveland and Fairhope, and we look forward to bringing our brand of ‘A Clean Car Fast’ to more Gulf Coast communities soon,” said Steve Schmidt with PitStop Carwash.
PitStop Carwash is one of the most trusted and exceedingly rated car wash businesses in the Gulf South. Each fully-staffed facility features high quality, state-of-the-art carwash equipment and free self-serve vacuums. The company also has existing locations in Gulfport, MS; Franklinton, LA; and Slidell, LA.
Stirling Properties Welcomes Drive Shack to New Orleans
Stirling Properties commercial real estate company is pleased to announce that Drive Shack is officially coming to the greater New Orleans area. This celebrates one of the first locations for the new golf entertainment concept.
Ryan Pécot and Saban Sellers, leasing executives with Stirling Properties, represented Drive Shack in securing the location.
Drive Shack is leasing the former Times-Picayune facility located at 3800 Howard Avenue, just off Interstate 10. The company is expected to demolish the existing building to make way for a three-story, 62,000-square-foot facility that will include 90 indoor driving range bays, a restaurant, corporate and group event space, additional lounge areas, and ample parking.
Demolition is expected to commence by June-July of this year with Drive Shack beginning construction shortly thereafter. Opening date of the facility is anticipated for late 2019.
Drive Shack is a new-to-market entertainment concept that is competing in the same space as the more established Topgolf brand. The first Drive Shack location opened in Orlando, Florida, this week. Drive Shack also has locations in the works in Richmond, Virginia; Raleigh, North Carolina; West Palm Beach, Florida; and Marietta, Georgia.
“Stirling Properties is thrilled to welcome Drive Shack to the greater New Orleans area. This deal has been in the works for quite some time, and we are happy to see it finally come to fruition,” said Sellers. “This is an exciting new-to-market concept—not just for New Orleans—but for the entire nation. The company is planning an aggressive expansion, and we are proud that they chose our market.”
“The greater New Orleans area is long overdue for major entertainment concepts such as Drive Shack. Retail and restaurant venues are evolving—consumers want to be entertained,” said Pecot. “We are proud to have had the opportunity to help Drive Shack find and secure this location, and we are confident that the company will perform exceptionally well in this market.”
Appreciation for Depreciation
The Tax Cuts and Jobs Act contains many major changes to the tax landscape that will affect every type of business entity, both large and small. The new tax reform creates significant opportunities to minimize a business’s overall tax burden.
Perhaps the most impactful—and favorable—legislation to the real estate industry is the changes and modifications to depreciation rules. Here we highlight key components that impact the commercial real estate industry and provide a comparison between the current and new tax laws.
Under prior tax law, most assets held in rental real property were required to be depreciated over periods typically ranging from 5-39 years. Assets with 20-year class lives or less were normally eligible for 50% bonus depreciation, which means we could deduct 50% of the asset in the first year and depreciate the rest over the remaining life of the asset. Under the new law, those same assets are now eligible for a 100% deduction in the year placed in service. Congress has also expanded bonus depreciation to acquisitions, which were not eligible in years past. This is a huge benefit for real estate in many ways, as it allows for significant tax write-offs in the first year for acquisitions, new developments, and redevelopments.
At Stirling Properties, we contract out a cost segregation study on all of our new acquisitions, developments, and redevelopments. These studies allocate the purchase price of the asset into its proper class life. The resulting history allows us to estimate what depreciation will look like on the project during underwriting. On the front end of our due diligence, we have an accurate idea of how much of the purchase price is going to be eligible for the new 100% bonus depreciation. For a $60 million acquisition or development, we estimate that as much as 20% of that investment can be expensed in year one, resulting in over $11 million in depreciation. As you can see in the chart below, depreciation expense has approximately doubled in year one as compared to the old law. The net present value (NPV) of the tax savings resulting from being able to deduct the additional depreciation in year one is over $500,000.
Similarly, ongoing operations of the property will be impacted considerably. To attract and retain high-quality tenants, landlords typically provide tenant improvement allowances which result in enhancements to the occupant’s space that revert to the landlord upon lease expiration. Under the prior law, these tenant improvement allowances were typically eligible for 50% bonus depreciation and the balance depreciated over 15 years. Under the new law, these allowances will be eligible for a 100% deduction in the year placed in service.
Investing in real estate can be a tax advantageous way to deploy capital, especially for individuals or companies that have significant recurring income tax burdens such as financial institutions. We anticipate that the new tax law will lead to higher demand for quality assets helping to keep deal flow robust, thus attracting more buyers and investors into the real estate arena. At Stirling Properties, we will continue to utilize this new tax law for the best interest of our properties and investors.
Disclaimer: The information contained herein is intended for information purposes only. Individuals should seek advice directly from a qualified professional before making any decisions or taking any action that might affect your personal finances or your business. Stirling Properties is not responsible for any investment or monetary decisions made based on the information provided above and is not a tax advisor. The information provided above was done so with the perceived intent of the legislation and not based on the actual regulations. The actual regulations could yield significantly different results.
Stirling Properties Welcomes Saltgrass Steak House to Fremaux Park in Slidell, Louisiana
Stirling Properties commercial real estate company is pleased to announce that Saltgrass Steak House is coming to Slidell, Louisiana, as part of Fremaux Park, a tract of acreage surrounding the Fremaux Town Center mixed-use development.
Saltgrass Steak House closed on the acquisition of 1.58 acres of property at the intersection of Town Center Parkway and Levis Lane, adjacent to LA Fitness. Construction on the site is anticipated to commence within the next couple of weeks. The Texas-themed steak restaurant will occupy 7,127 square feet of space. Ryan Pécot and Rhonda Sharkawy, Stirling Properties’ Senior Retail Leasing & Development Executives, handled the transaction.
Saltgrass Steak House at River Marketplace in Lafayette, LA
Saltgrass Steak House currently operates five restaurants in Louisiana. This marks the 1st location for the Northshore of the greater New Orleans area.
Fremaux Town Center, anchored by Dillard’s, Dick’s Sporting Goods, Kohl’s, and Best Buy, is part of the roughly 350-acre regional mixed-use development located at the southwest corner of Interstate 10 and Fremaux Avenue in Slidell, Louisiana. The retail center includes more than 640,000 square feet of shopping and restaurant options. The adjoining Fremaux Park includes Springs at Fremaux Town Center’s 296 luxury residential apartment units and Springhill Suites by Marriott soon under construction. Additional phases are coming soon with added residential, retail, and office park.
Tenants include Albasha Greek & Lebanese Restaurant, Allure Spa, Aveda, Bath & Body Works, Bellagio Nail Spa, Best Buy, BJ’s Restaurant & Brewhouse, Books-A-Million, Buckle, Capital One, Carter’s, Charlotte Russe, Cheddar’s, Chico’s, Chipotle Mexican Grill, Claire’s, Dentists of Slidell, Dick’s Sporting Goods, Dillard’s, dressbarn, Exit 16 Boutique, European Wax Center, Five Below, Five Guys Burgers & Fries, Forever 21 Red, Francesca’s, GNC, Goodyear, Great American Cookie Company, Journeys, Kay Jewelers, Kirkland’s, Kohl’s, LA Fitness, Lane Bryant, LensCrafters, LOFT, Longhorn Steakhouse, Luxe 83, Marble Slab, Massage Envy, Mattress Direct, Michaels, Off Broadway Shoe Warehouse, Panera Bread, Payless Shoes, PetSmart, Pier 1 Imports, Pizza Platoon (coming 2018), Rack Room Shoes, Red Robin, Rock N Roll Sushi, rue21, Saltgrass Steak House (coming soon), Smoothie King, Sports Clips, Springhill Suites by Marriott (coming 2018), Starbucks, Tesla (charging stations), T.J.Maxx, Torrid, ULTA Beauty, Verizon Wireless, Versona, Victoria’s Secret, Which Wich, and Zales.
Fremaux Town Center is currently 98% leased, and jointly owned and operated by CBL Properties and Stirling Properties.
For leasing information, contact Ryan Pécot at 337.572.0246 / rpecot@stirlingprop.com or Michael Oswald at 423.490.8272 / mike.oswald@cblproperties.com.
Stirling Properties Breaks Ground on Hammond Square Self Storage
Stirling Properties commercial real estate company has broken ground on the development of Hammond Square Self Storage in Hammond, Louisiana.
The 3-story, 93,902-square-foot storage facility will be located on the corner of US Highway 51 (SW Railroad Avenue) and West Minnesota Park Boulevard behind Walgreens. It will include 641 climate-controlled units as well as RV and boat storage areas.
Construction has commenced on the project, with site work and foundation work already underway. Anticipated completion is scheduled for the end of July.
Stirling Properties is developing the facility and will handle daily management upon completion. The architect is Houston-based Edgecomb & Associates, a firm that specializes in self-storage facilities, and Kent Design Build is the general contractor for the project.
“Stirling Properties is excited about the development of Hammond Square Self Storage. This project marks our first ground-up, climate-controlled storage facility development,” said Townsend Underhill, President of Development for Stirling Properties. “Tangipahoa Parish is experiencing significant growth, creating a high demand for this type of service. The strategic location in close proximity to Hammond Square and I-12 will provide easy access and convenience for customers.”
Underhill continued, “We’ve assembled a very talented team—with tremendous experience in the storage industry—to work on the development of Hammond Square Self Storage. Stirling Properties currently manages and operates several climate-controlled storage facilities within our existing portfolio that were redevelopments of previously occupied retail space.”
Stirling Properties also redeveloped the neighboring Hammond Square shopping center located on the northwest corner of Interstate 12 and Hwy. 51. Hammond Square is Tangipahoa Parish’s premier shopping destination. Anchored by Dillard’s, Target, Sears, JCPenney, Academy Sports+Outdoors, and AMC Theatres, the 903,000-square-foot retail center offers a dynamic mix of national and local retailers, shops, and restaurants.
