parrish industrial real estate presentation - jan. 2016

FORECAST BREAKFASTSE WI INDUSTRIAL REAL ESTATE MARKET

Presentation by:Brian S. Parrish, MBAPresident & CEOPARADIGM Real Estate LLC

Thursday, January 14, 2016

www.PARADIGMre.com

Agenda

• Factors Affecting Manufacturers• Vacancy & Absorption• Deal Velocity• Investment• Portfolio Sale Bonanza• New Construction• Self Storage Building Boom• Interesting Leases• Interesting Sales• SE WI Industrial Real Estate Forecast

PARADIGM Real Estate LLCwww.paradigmre.com

FACTORS AFFECTING MANUFACTURERS

U.S. added 292,000 jobs in DecemberNational unemployment rate holds steady at 5 percent

2015 was an auto sales record:17.47mm vehicles

Highly active industrial real estate market – local and national


ISM Milwaukee PMIISM National PMI

Ended at 48.53%Ended at 48.20%


THE FACTOR 2015 2016Skilled labor shortageUnemployment

Severe issue5%(national)/4.4%(metro)

Shortages to continueRanked 32nd in job creation

Housing Market Strong3rd healthiest in nation

To remain strong

Construction prices Increased, shortages Still high

Commodities(excluding construction)

PlummetedOil at 6 year low

To remain lowStronger dollar expected

Interest rates No changeFed funds from .25-.5%

2 - 4 more increasesMin. effect on consumer rates

Elections Non-factor Non-factor

Market Liquidity AbundantSBA, conventional, creative

Still abundant - more players

Total Vacancy & Net Absorption


Source: Xceligent

1,782,074

3,652,378

1,053,297

653,503 651,398

5.0%

4.7%

4.4%

4.5% 4.6%

4.0%

4.2%

4.4%

4.6%

4.8%

5.0%

5.2%

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4

2015 in a Nutshell

Vacancy rate dropped from 5.00% (Q4 2014) to 4.6% (Q4 2015)

Vacancy rate hit 9.75% in 2008 Walworth County had lowest vacancy at 1.4% (Q4 2015), followed by

Sheboygan at 3.1% Racine County had highest vacancy at 6.5%, followed by Ozaukee

County at 6.1% Almost 6 years of positive absorption

2015 Absorption 5,406,382 SF Milwaukee & Kenosha Counties 87.6%


Source: Xceligent

DEAL VELOCITYYear Avg Age # of Sales Avg $/SF

2009 28 77 $41.98 2010 35 97 $35.39 2011 33 163 $30.59 2012 39 269 $32.24 2013 40 215 $29.75 2014 40 300 $33.01 2015 42 264 $35.66

• Prices of existing buildings nearly half new construction.• 8% increase in $/SF• 12% decrease in # sales (likely to be breakeven)

Source: Xceligent Data, PARADIGM analysisPARADIGM Real Estate LLCwww.paradigmre.com

INVESTMENT

VOLUME• Higher demand, lower supply• 2015 saw $420.3B investment sales• 2016 expecting $500B investment

sales• 8-10% investment buyers over last 4

years were internationalSource: NAR


INVESTMENT• National average –

• SE WI Cap Rates have ranges from • 6.5% - 7.5% for Class A • 8 .0 – 9.0% for Class B

• Industrial cap rates are almost fully compressed• Cap Correlation to interest rates vs. supply/demand


Warehouse Flex/R&DAverage 5.48% 7.15%Range 3.00 – 7.00% 5.75% - 9.00%

Source: PwC Q4 2015

CAP RATES

PORTFOLIO SALE BONANZAZilber purchased six industrial buildings from CenterPoint, with a total of 206,000 SF on Howell Ave. for $2.55 million, or $12.38/Sq. Ft. Leased, added value, and FOR SALE!

Expect at least 2 more large portfolio sales in 2016 totaling 800,000 SF+LOOK FOR SPIN-OFFS


CenterPoint sold CrossLake Airport Business Park (formerly ACE) to Building ABC Investor LLC for $27mm, or $24.95/SFWestmount Realty Capital LLC purchased CenterPoint Properties Portfolio • Feb. 2015 • 1.74 Million SF (10 Buildings) 80% occupied • $61,483,556 • $35.33/FTCenterPoint has completed exit of multi-tenant flex portfolios.


2015 Market Deliveries Property Name Size (SF)

Enterprise Business Park Bldg III 375,000Washington Ave and Frontage Rd 155,844Gateway Business Park 82,500Manhard Dr & Lilly Rd 146,423West Allis Industrial Showroom 130,000Old Orchard Road (Hwy 145) 158,525Oberlin Filter Company 90,000Delaney V 80,000ENR Group 110,000Custom Logistics 50,000RidgeView Business Center VII 113,000Freistadt Rd & Maple Rd 32,000Weimer Building 68,000Grand Total 1,591,292

2016 Market Deliveries

Market Size (SF)

Milwaukee 388,274 Kenosha 1,836,052 Racine 132,000 Washington 285,063 Waukesha 100,000 Grand Total 2,741,389

NEW CONSTRUCTION: 2015 vs. 2016

Source: Xceligent

NEW CONSTRUCTION

• Shortage of land, materials, labor

• Prices are increasing• 1.6mm Sq. Ft. under

construction for 2016• Ideal lending environment

for manufacturers


SELF STORAGE BUILDING BOOM

PARADIGM Real Estatewww.PARADIGMre.com

SELF STORAGE BUILDING BOOMPARADIGM Real Estate LLCwww.paradigmre.com

DeveloperAcquisition Year

Delivery Year City

Acquisiton$/SF Size (SF)

Units (est.)

Self Storage of Brookfield 2014 2015 Brookfield 93,000 500Self Storage of Brookfield 2014 2015 Brookfield 45,000 350Metro Storage 2014 2015 Brown Deer $ 17.20 85,291 525EZ 2015 2016 Cudahy 49,200 400Storage Master 2014 2015 Franklin 12,000 600EZ 2015 2016 Greenfield 37,000 400Birchwood 2015 2015 Menomonee Falls $ 41.66 48,000 300Vault 2015 2016 Menomonee Falls 50,100 350Humboldt Storage 2014 2016 Milwaukee $ 2.78 64,440 367Highland Development 2015 2016 Milwaukee $ 20.40 125,000 800Highland Development 2015 2016 Milwaukee $ 32.37 40,160 450Milwaukee Storage Partners 2015 2016 Milwaukee $ 24.67 124,245 750Storage Master 2015 2016 Milwaukee $ 9.63 57,121 600Storage Master 2014 2015 Muskego $ 20.96 57,234 350Vault 2014 2015 Waukesha $ 25.53 80,647 450U-haul 2015 2016 Wauwatosa $ 13.29 394,840 2,000WI SS WA LLC 2014 2015 West Allis $ 16.13 123,986 750

$ 20.42 1,487,264 9,942

INTERESTING LEASES

• QuadGraphics leased 188,210 SF at the American facility on Duplainville, Pewaukee

• Briggs and Stratton leased 235,600 SF at 4355 N. Richards St, Milwaukee

• Beck Aluminum leased 193,605 SF at 7505 Durand Ave, Mount Pleasant


Additional Quad warehouse

INTERESTING LEASES

• Gardner Pet Group leased 160,000 SF at 2845 Wingate St., West Bend

• OTR Wheel & Engineering Inc. leased 71,778 SF at Brown Deer Business Park Bldg 5, Brown Deer

• Seko World Wide leased 50,564 SF at Liberty Property Trust building in Oak Creek


Gardner facility, West Bend

INTERESTING SALES


• Wangard Partners purchased beverage facility in Wauwatosa • Aug. 2015 • 196,921 SF • $4,800,000 • $24.37/SF

• R2 Companies and PolskyHoldings purchased US Postal Service building from EncoRealty • Nov. 2015 • 1,105,000 SF • $13,100,000 • $11.85/SF

INTERESTING SALES

113th St., Wauwatosa

INTERESTING SALES


• Redwall Screen Printing • 7655 S. 6th St., Oak Creek • Feb. 2015 • 88,820 SF • $1,975,000 • $22.23/SF

• Hilmot • 11925 W. Carmen Ave, Milwaukee • May 2015 • 100,000 SF • $2,800,000 • $28.00/SF

• Indiana Investment LLC (Kreilkamp) • 13300 Whitney Dr. Germantown • Oct. 2015 • 102,400 SF • $3,380,000 • $33.00/SF

7655 S 6th, Oak Creek

IREM INDUSTRIAL REAL ESTATE FORECAST

• 2016 will be another strong year• Lower vacancy• Slower rate of positive absorption• Lackluster but healthy leasing market• Cap rates to remain stable at current

lows• More sale leaseback investment deals


2016 Industrial Real Estate Forecast

• New construction will become even more prevalent

• Uncertainty due to elections, interest rates, and global matters

• Swinging past equilibrium in the SE WI industrial RE market


2016 Industrial Real Estate Forecast

THANK YOU

Brian S. Parrish, MBAPresident & CEOPARADIGM Real Estate LLCwww.PARADIGMre.com(262) 717-5151