This quarter felt markedly different than any since Q1 2020. Our home state California finally “reopened” and we’re officially back in the office, but defining the “new normal” remains elusive. Below are our thoughts, ideas and activities during an evolving quarter.
We closed $100M of industrial acquisitions over the past 6 months.
We’ve been busy closing on 3 strategic infill industrial properties in Southern California in 2021. In an extremely competitive environment, we’ve leaned on relationships and partnerships to find interesting opportunities at what we believe to be attractive pricing and risk adjusted returns. Our multiple acquisitions underscore our vision of committing to $500M in industrial investment in the near future.
Our latest acquisition, Temecula Heights, highlights the quality of the assets we’re pursuing. The property is located in Southern California with a submarket vacancy rate at a nominal 2.00%, is 84% leased to Abbott Laboratories (an investment grade, Fortune 100 global leader in medical products) and was built in 1998 as a highly functional warehouse and distribution building. We acquired the property at $40.75M, just shy of a 5.00% cap rate and $178/SF, metrics we believe to be compelling in the context of an industrial market where deals, with or without credit tenancy, are commonly pricing at sub 4.00% cap rates. We continue to build a pipeline of attractive industrial opportunities.
The return to work is complicated. But it’s good to be back.
Many of the largest companies in the world issued definitive statements about the future of the office while in the eye of the storm. It’s natural to react in the moment. To commit quickly. But the ever changing narrative of these same leading companies recognizes that generally we have all been too quick to formally pronounce the end of office. There is no one size fits all and demanding a uniform position on the importance, or not, of the office prematurely harms culture, not advances it. Some team roles will demand greater flexibility and greater productivity will follow. Others will prefer a place to socialize, engage and perform within the context of a physical space. We forget that many of our deepest connections in and out of the office were nurtured in a world where people met face to face. We’ve all relied upon these past relationships to navigate the remote environment that existed since early 2020. But this isn’t true for all professionals. Many team members, especially those newest to a company and its culture, don’t have the luxury of an embedded social network, mentors, training or the benefits of learning through the osmosis that come with the organic flow of office dialogue. A company’s culture doesn’t translate well, or at least as well, into pre-arranged virtual meetings.
In mid-June we formally reopened our office for the first time since March 2020, a decision we delayed many times over the past year. It’s taken some time to adjust to a more typical routine much like remote work did over a year ago. We’ve taken a patient approach with respect to our office plan as being flexible and thoughtful vs impulsive has always served us well. A month in it feels far more “normal” and our new office is a blend of many things learned over the past year.
While our office was closed we relied on, and upgraded, our platform tools such as Teams to collaborate. We invested heavily in all aspects of our work flow and work product to work smarter. We gained a tremendous amount of efficiency and built in future flexibility in the process. Without a doubt, we learned much form the experience and will continue to adapt accordingly. A huge silver lining over a tough period. But at our core it’s clear we are an “office centric” culture. The pandemic hasn’t killed this sentiment rather it’s reinforced it. We believe an in person ecosystem is critical to achieving meaningful collaboration, to leading team members, to providing a path toward career growth and to creating a culture where people really know their colleagues. It’s hard to truly bond as a team when your engagement is limited to sporadic meetings, brief email exchanges and the occasional (and often awkward) Zoom happy hour. It’s good to be back.
We add value through innovation. And our partner made the news.
Innovation has always been core to our investment thesis and value added execution. A few years ago we partnered with Openpath, a best in class access control solution, and immediately implemented their tech into many of our assets. Last year, for example, we completed a ground up multi-family development in San Diego and installed access card readers at every resident unit door in lieu of the traditional lock and key. A joint leap of faith as we educated our customers on the benefits of a new and better way to access their unit. The investment was an important community differentiator and incredibly well received by our residents during our lease up.
Earlier this month Openpath announced a strategic partnership with Motorola Solutions, a great result for the Openpath team and important next step for our partners as they scale the business. While we’ve always been real estate focused in our pursuits, we continue to evaluate opportunities for direct investment in strategic PropTech partners that allow us to collaboratively implement cutting edge innovation throughout our portfolio.
We have great partners.
During our pandemic journey we stayed busy acquiring 4 new assets, selling another and materially repositioning our operating platform and portfolio. Though the effects of the pandemic will linger the toughest moments feel behind us. We have weathered the storm by virtue of our long standing relationships.
Thank you for your patience, trust, commitment and collaboration during an eventful 18 months.