Fresh off declaring that the market for industrial property hit its bottom last quarter, Sagard Real Estate has completed a deal for a large-scale property in New Jersey — its second investment for its newest fund.
Sagard, which is building a portfolio of industrial real estate near seaports, some multi-family buildings, and other alternative property types, is hoping to take advantage of attractive real estate valuations that have been hard hit by changing trends and rising interest rates over the last few years. Sagard is a global manager with private equity, private credit, venture capital, and real estate and backed by Power Corporation. Power Corp. is controlled by the Desmarais family in Canada.
The manager acquired the property in South Brunswick, NJ — in an area named for its exit number off the New Jersey Turnpike and which is close to ports and metropolitan areas on the East Coast — for a fund designed to be moderately value-add and use portfolio construction and leverage to boost returns.
“This is a perfect fit for the strategy because it's a value-add orientation, it's one of the top industrial markets in the United States,” said John Maurer, head of equity at Sagard Real Estate. “The fund strategy is basically to invest in what we would characterize as best locations, best submarkets. We think we can create some value over our cost, and ultimately, once we lease it up, generate attractive income for the investment fund over time.”
The move is indicative of a wider move by managers to start taking advantage of attractive pricing in real estate. The sharp increase in interest rates by The Federal Reserve over the last two to three years and the subsequent increase of 5- and 10-year Treasury Forward Curve rates has resulted in a dramatic downward repricing of real estate.
“As it stands today, in the overall real estate market all sectors are down by close to 20 percent from their peak pricing in 2021, although industrial has declined less, down16 percent from peak to trough,” said Maurer. “From our view these values bottomed out at the beginning of the fourth quarter of last year. We think that the bottom is formed in the industrial market currently, and that creates an excellent entry point into investing in industrial warehouses in locations like Exit 8A.”
Historically investing in the bottom of the market, in the right sector, and within the right subsector, will result in outsized returns just by taking advantage of the timing, he added. “We think we're in one of those cycles currently, which is one of the reasons why we're actively in the market raising this fund,” he added.
Sitting just off Exit 8A close to I-95 and 32 miles from Port Newark, the 850 million square foot property is strategically located on the Eastern Seaboard within the tri-state area. Industrial has been one of the top performing real estate sectors in terms of year-over-year rent growth and demand. The firm has plans to upgrade features like lighting and expand the building into additional land that is part of the deal.
