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Hager Pacific To Texas Border For Industrial Deal

06 May 2013

Hager Pacific Properties’ search for industrial property investments with strong upside potential has taken the company to a pair of Texas cities next to Mexico.
The Newport Beach-based real estate owner and investor said last week that it had closed on the purchase of a 16-building industrial portfolio in the cities of McAllen and El Paso, located at opposite ends of the Lone Star state.

The buildings total about 800,000 square feet and were purchased for about $17 million in an all-cash transaction.

The deal works out to a price of a little more than $21 a square foot—roughly 20% of what a well-leased industrial building in Orange County can sell for these days.

The Texas portfolio was valued closer to $40 million near the peak of the last real estate cycle.

It fell into financial distress, thanks to heavy debt load under prior ownership, said Rob Neal, a managing partner at Hager Pacific.

“It was the poster child for 2006 excess,” Neal said.

Hager Pacific bought the buildings from New York-based-based C-III Capital Partners LLC, which was acting as the special servicer for the portfolio. It bought the Texas buildings in a venture with Houston-based Interra Capital Group.

The purchase is the first for Hager Pacific in either of the two cities, which are more than 700 miles apart along the Texas border with Mexico.

More deals in the two cities are expected, according to Neal.

Hager Pacific aims to have between 1 million and 3 million square feet of property in each of its core markets in order to get “a good, solid mass,” Neal said.

The investor isn’t necessarily looking at larger cities in Texas for industrial investments.

“Houston and Dallas are pretty well played out,” Neal said.

McAllen and El Paso, meanwhile, are seen as growing industrial markets, thanks to trends in international trade—in particular, moves by some U.S.-based companies to bring manufacturing operations closer to home by shifting factories from China, according to Neal.

The industrial real estate market in El Paso, which straddles the Rio Grande river, is said to be growing, with a lot of warehouses used to hold either raw materials bound for maquiladoras—Mexican assembly or manufacturing operations on the other side of the border—or to store outbound finished products.

McAllen, where 11 of the 16 buildings in Hager Pacific’s new portfolio are located, ranked seventh on CNN’s 2012 list of the fastest-growing cities in the U.S.

“Many U.S. companies are currently modifying their supply chains to take advantage of ‘near-shoring’ as Mexico becomes a more viable alternative to China as a low-cost manufacturer,” Neal said.

Hager Pacific’s total industrial portfolio now totals about 13.5 million square feet in the U.S., with 110 properties. It also owns 2,300 apartments, primarily in California.

A bulk of its recent industrial buys—it’s made more than 30 deals over the last three years—are of the opportunistic variety. The company aims to buy, renovate and lease up buildings that other investors tend to shy away from, focusing on deals priced at $3 million and up.

Strategic Shift

The company has long used its own capital to buy properties, but its venture with Interra Capital marks a shift in strategy. Hager Pacific now is looking to partner with other investors in select markets in order to get access to properties it might not otherwise come across.

“Our problem is that we have more capital than properties to invest in,” Neal said.

A few more joint venture investments are expected to close soon, including deals in Orange County, according to Neal, who in addition to his role at Hager Pacific had spent much of the last year acting as the interim chief operating officer for the Roman Catholic Diocese of Orange’s Christ Cathedral in Garden Grove.

He recently turned over the COO role at Christ Cathedral, but remains on its architectural renovation committee, where he’s heading up the $55 million refurbishment of the iconic campus, which the diocese acquired from Crystal Cathedral Ministries last year.

About the Author: Idea Hall