Turns out it pays to have Lowe’s as a long-term tenant.
Last week the 1.2 million-square-foot warehouse at 3021 Commerce Road in Deepwater Industrial Park sold for $127.7 million, city records show.
The newly built distribution center landed Lowe’s as a tenant after the home improvement giant balked on a similarly sized distribution facility in Hanover.
The property’s new owner is Realty Income Corp., a publicly traded real estate investment trust out of California.
The seller in the deal was Hourigan Development, the local firm that built Deepwater Industrial Park. When Hourigan bought the 110-acre plot for $8.5 million around five years ago, 17 old warehouses stood on the site. Those were razed to make way for the new industrial park.
Not included in Realty Income’s purchase were a pair of parcels at 2301 and 3205 Commerce Road that Hourigan continues to own. The two parcels total 35 acres and roughly 300,000 square feet of industrial space is being built on them.
City records show the Realty Income deal closed on Nov. 1. The parcel was most recently assessed at $6.2 million.
Hourigan Development founder and CEO Mark Hourigan declined to comment, as did a spokesperson for Realty Income Corp.
According to its website, Realty Income Corp. has nearly 12,000 properties in its portfolio, 347 of which are in Virginia. It’s unclear the extent of its holdings in the Richmond region, though it does still own a tobacco packaging plant in Chester that it bought in 2015 for $16 million.
At nearly $128 million, the sale is the second-largest real estate deal in the city limits so far this year. The top spot is held by the $150 million sale of Gateway Plaza in July.
Evan Magrill, a Thalhimer broker with nearly 30 years of experience working on industrial deals, said he sees the Realty Income-Hourigan transaction as a sign of the local industrial market’s strength. He said industrial space in the region has around a 2 percent vacancy rate.
“The (industrial) product type has been in favor — more companies are storing more goods and the economy’s been good,” said Magrill, who did not work on the sale of the Lowe’s building. “We don’t see a let-up in sight. The pace may slow but it’s still a very strong market.”
The Lowe’s building sold for about $106 per-square-foot, a rate that Magrill said is also indicative of the times.
“A few years ago ($106 per square foot) would’ve struck me as high. Today it does not strike me as high,” he said. “Construction costs are much higher than they have been in the past. They’re expensive to build, get leased and ready for tenants. It’s a good value for the seller, for sure.”
Magrill said we may also be seeing the effects of rising interest rates on the pace and structure of industrial dealmaking.
“It’s possible this one was rushed because of interest rates moving up. Maybe the buyer wanted to get their financing in place prior to (interest rates) going up,” Magrill said.
“There may be some hastened selling right now, but it’s also hard to predict what interest rates will do over a longer period of time. We might see people using adjustable-rate financing or doing short-term financing and long-term leverage at a later date. It’s hard to say.”
Hourigan, meanwhile, has another major project cooking in the Southside.
The firm is planning to raze the former Southern States silos at 2-4 Manchester Road and build a 20-story apartment tower and a six-story office building.