Just about any successful real estate firm knows its reputation can make or break a deal.
For Sitex Group, reputation is what helps it find the deal in the first place — and what has helped it create a niche in New Jersey’s white hot industrial market.
“I think we’ve done a good job building our reputation as ‘the easy buyer,’ ” said Brian Milberg, a principal of the Englewood-based firm. “So if a company needs to sell an asset for any and all reasons, they don’t need to go through an entire marketing process.”
There’s a simple reason for that.
“We don’t buy cash flow, so we’re not looking for buildings that are long-term leased for 10 or 15 years,” Milberg said. “That’s not our model — our model is to be a solution to a seller that is not as sophisticated as an institution, come in and then take that property into what we would consider the next 20 years of ownership.”
That typically means modernizing properties that are tired but well-located — a strategy that plays all too well in mature, land-constrained submarkets such as the Meadowlands. The model has allowed Sitex to become one of the most active and nimble buyers of industrial space in northern New Jersey in recent years, with a focus on small and midsized buildings that can meet the “last mile” distribution needs of tenants seeking a short drive to Manhattan.
The 15-year-old investment firm, which was founded in Chicago using a similar strategy, didn’t actually make it to the Garden State until about late 2009. That was when Milberg, now 38, and fellow Principal David Friedman, 44, partnered up and brought the platform to the Northeast.
The growth since then has been exponential. Since entering New Jersey, Sitex has acquired properties totaling $380 million in value and completed $50 million worth of development.
And the 12-person firm has another $200 million worth in its development pipeline this year, even before counting its plans in other markets such as Chicago and Southern California.
Making an entrance
With no track record of making large deals work in the state, Sitex Group had to go against the grain in order to make its entrance to New Jersey six years ago.
The Englewood-based firm did so with its first acquisition, a 210,000-square-foot, two-building warehouse site at 125-200 Central Ave. in Teterboro that was vacant at the time.
“(There was) not a lot of capital interested in a big vacant building,” said David Friedman, principal of Sitex Group. “Even in Teterboro, which now is probably as sought after as you get in the industrial market.”
But the firm acquired the property at an attractive price — which was undisclosed — invested in capital improvements and leased up the entire complex within six months of the acquisition.
It sold the complex about a year later to TIAA-CREF.
“(We) just had to start a track record and show our institutional investors that this is what we can do and this is how we do it,” Sitex Group Principal Brian Milberg said, later adding: “That was really one of the first true investment sales in the Meadowlands, post-downturn.”
“They seem to be able to uncover real opportunity by really being able to see past the asset, from what it looks like today to what it could be,” said Stephen Elman, an industrial broker and executive director with Cushman & Wakefield. “Whether it’s increasing the loading, increasing the parking or changing the lighting and painting … they’re able to see value in things that maybe some other developers don’t see.”
Backed by private equity and institutions such as the State Teachers Retirement System of Ohio, Sitex Group’s biggest investor, the firm’s push in North Jersey was on full display late last year. It announced roughly one acquisition per month from June to December, with sites ranging from 30,000 square feet in Carlstadt to 184,000 square feet in Lyndhurst.
In just about every case, Sitex has spent or plans to spend millions on upgrades such as new mechanical systems, new office space or a new roof in order to make the real estate “worry-free” for their new tenants. Sometimes, that even includes new walls.
“It feels like we have created a brand, that when someone walks into a building that we have purchased and redeveloped or retrofitted, there’s a certain expectation of what we’re delivering back to the market,” Friedman said. “Not only for our investors, but for the tenants in the marketplace, for the new owners.
“That’s been a big part of our thought process as we’ve moved things forward.”
The firm is also active in ground-up development. In Ridgefield, it’s developing a complex that will include buildings of 195,000 and 83,000 square feet, with delivery slated for late this year.
In the Avenel section of Woodbridge, Sitex is stripping down a 175,000-square-foot former C&S Wholesale Grocers/White Rose Foods warehouse and rebuilding it as a modern facility. It also plans to build a new 200,000-square-foot logistics facility on an adjacent site.
Those projects come in the midst of an all-out boom for New Jersey’s industrial market, thanks to the rise of e-commerce, food and beverage and logistics. Vacancy in the second quarter fell to a historical low of 5 percent, according to Cushman & Wakefield, while overall average asking rents for warehouse and distribution space rose to $6.55 per square foot, a rate that has increased by more than 25 percent over the last three years.
And Milberg noted that rents for new construction are starting to reach double digits, which presents both an opportunity and a challenge for developers. For a region that is now reliant on infill development sites rather than cornfields, “it’s getting harder and harder to buy land.”
You may have heard all about New York companies crossing the Hudson River to find newer, yet less expensive office space in northern New Jersey.
Sitex Group is also seeing that dynamic in the warehouse market.
For instance, Principal Brian Milberg said, industrial tenants are coming from the Bronx to look at a nearly 173,000-square-foot Sitex property in Totowa. The firm is poised to offer the new space that those users are seeking: After acquiring the Shepherds Lane property in spring 2015, the firm launched “a significant capital improvement campaign” to modernize the building.
“There’s a lot of tenants coming over from the boroughs who are paying double-digit rents per square foot in these obsolete buildings that are now coming to New Jersey,” Milberg said. “With the incentives, combined with the lease rates — which, we might think are peaking in New Jersey, but they’re still half of what they’re paying in the boroughs … there’s that dynamic as well.”
“The land that is available is taking a long time to get entitlements because of the cleanups that are associated with it, unless you go down to central New Jersey,” Milberg said. “But even there, land is getting tougher to find.”
It’s why Sitex sees opportunity in its niche of smaller, well-located properties with value-add opportunities and midsized development. And it has bolstered its team in the past two years with hires such as former Prologis executive Bo Farkas, who spearheads development efforts, and onetime JLL broker Blake Chroman to oversee leasing in the region.
Growing that roster has coincided with growing its footprint. Sitex in 2014 marked its entrance to a third major market with the launch of its office in Manhattan Beach, California, and it’s now exploring opportunities in Washington, D.C.
Across its national footprint, Sitex has completed $650 million worth of acquisition and development activity since starting the company. And its most recent fund has the capacity to acquire and build more than $600 million worth of space, Milberg said.
When the company was founded in 2001, it had a fund of $10 million.
“We continue to stay focused on this one particular sector,” Friedman said. “Obviously things have changed a lot in this sector over the last few years with the evolution of e-commerce. That change is probably still at the beginning, so our plan is to continue to focus on exactly what we’re doing and leverage our skillsets into more opportunities.”
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