The Philadelphia-area industrial portfolio traded for $194.5 million with an 80% IRR.
By Barbara Ballinger | June 30, 2023 at 08:02 AM
New York City-based Wharton Industrial has announced the sale of its 1.3 million-square-foot industrial portfolio near Philadelphia for $194.5 million, giving it an internal rate of return of 80%. The deal closed June 23, 2023.
Peter C. Lewis, founder and chairman of Wharton Equity Partners, sold Twinbridge Industrial Park, a 37-asset portfolio in Pennsauken, N.J., 15 minutes from Philadelphia to an affiliate of New York-City-based DRA Advisors, a real estate investment advisor specializing in value-added investing.
This transaction represents an encore for Wharton and Walton Street Capital, a Chicago-based, privately held real estate investment firm. In a prior venture, the companies repositioned a nearly 300,000-square-foot, derelict, former subway repair facility in South Philadelphia and leased the remodeled space to Amazon. “It was a ‘last mile’ facility that we went in and renovated.” Lewis told GlobeSt.com. “We held it only for 15 months then sold the property and achieved an IRR of more than 200%.”
The industrial sector appeals to Lewis, who shifted his company’s focus from multifamily housing, beginning back in 2016-17. “I had an instinct that the technological changes going on wouldn’t stop, and that the asset class that would benefit the most—and stand out dramatically—would be industrial. It has always been a bit under the radar. People like these properties, which are adjacent to big cities since they want faster and faster access,” he said.
The backstory to the latest sale offers a lesson in taking a chance despite some trepidation by others. The decision was made to buy the Twinbridge portfolio in July 2020 from the family who had developed it. At the time, COVID-19 was ramping up and causing concern about how the economy and real estate industry would be affected. Many deals were put on hold. “With over 50 tenants at Twinbridge, there was legitimate concern as to the sustainability of the tenancy,” Lewis said.
Yet, he and his team decided to move ahead. “Despite others who were fearful of investing at that time, we saw the portfolio as prime real estate that we believed would weather economic uncertainties,” he said. “Supporting our belief were the low vacancies in the market, tightness of supply, proximity to Philadelphia and the diversity of tenants–many of whom were long-term occupiers providing essential services. Our intuition was greatly rewarded, with rents increasing more than 100% during our three-year hold, through strategic property improvements and extensive leasing management.”
Most of the tenants stayed as the company went “lease by lease,” Lewis said. “We also made improvements but mostly cosmetic since the property had been well maintained.”
Lewis and his colleagues at Walton Street made still another decision some might consider contrarian. They elected to list the property for sale in the first quarter of this year, even though high interest rates and fears of a potential recession made many potential sellers sit out deals and wait for a better economic forecast. “Interest rates can have a chilling effect and few lenders are willing to lend so much money,” Lewis said.
But again, it proceeded. “Although there was risk in pursuing a sale in this climate, we believed that the quality of the properties, the growing interest in small bay industrial, and the fact that there would be limited competing properties on the market would outweigh any headwinds. We felt we would have the playing field to ourselves and someone would see what we saw, and we were correct,” Lewis said.