Brookfield Asset Management (NYSE: BAM) is the latest big-name investor to pour money into industrial real estate. The giant alternative asset manager is forming a strategic partnership with Elion Partners focused on logistics real estate. Here's a closer look at this deal and the red-hot industrial real estate sector as a whole.
A big bet on the Windy City's industrial market
The centerpiece of Brookfield's strategic partnership with Elion is Elion Logistics Park 55, or ELP 55, a master-planned industrial park in Chicago. Brookfield recapitalized this park with the potential to develop about $1 billion of industrial real estate. It currently has five existing Class A industrial assets with 4 million square feet of space that's 100% leased. Brookfield and Elion envision developing up to 15 million additional square feet of industrial properties in the park in the future.
In addition to investing in ELP 55, Brookfield has committed $80 to Elion's latest value-added real estate investment fund. The $500 million fund's portfolio includes more than 3.2 million square feet of logistics real estate across coastal infill markets.
Brookfield noted that its relationship with Elion will provide it with the opportunity to gain exposure to high-quality industrial assets in supply-constrained markets, translating into significant upside potential.
Flooding the market with capital
Brookfield's deal is the latest move by a big-name investor in the sector this year. For example, BREIT, a non-traded REIT by alternative asset manager Blackstone Group (NYSE: BX), agreed to acquire Canadian industrial REIT WPT Industrial Real Estate Investment Trust in a $3.1 billion all-cash deal. That represented a whopping 32.1% premium to its net asset value (NAV).
Meanwhile, real estate titans Sam Zell, through Equity Commonwealth (NYSE: EQC), and Barry Sternlicht's Starwood Capital fought over industrial REIT Monmouth Real Estate Investment (NYSE: MNR). Monmouth's shareholders ultimately rejected Equity's $3.4 billion cash-and-stock offer, which valued it at a 23.1% premium, opting to look for other alternatives.
Meanwhile, Brookfield had been on the other side of all this wheeling and dealing. It cashed in on its investment in IDI Logistics, selling the logistics real estate company to another Canadian investment firm in 2018 for $3.5 billion. It previously purchased IDI for $1.1 billion.
In addition, Brookfield sold its European warehouse business, Gazeley, to Singapore's Global Logistics Properties for $2.8 billion in 2017. Brookfield is now getting back into the sector in a big way with its Elion partnership.
The reason Brookfield and others are willing to pour billions of dollars into logistics real estate is that they see significant growth ahead. Sam Zell laid out his bull case for the sector in an open letter to Monmouth shareholders before they rejected his deal. He wrote: