UNLOCK THE POWER OF THE VAULT

FIRST PERSON: Dwight Merriman of Black Creek Group

June 25, 2018

FIRST PERSON: Dwight Merriman of Black Creek Group

June 26, 2018 | Beth Glavosek | Blue Vault

 

Dwight Merriman joined Black Creek Group in 2010 as the CEO of Black Creek Group's industrial platform. Mr. Merriman currently serves as Head of Real Estate for Black Creek Group, responsible for the oversight of the investment process for industrial, office, retail and multi-family investments. In April 2017, Mr. Merriman was appointed Managing Director, Chief Executive Officer, Black Creek Diversified Property Fund Inc. Mr. Merriman has also served as Managing Director, Chief Executive Officer and a member of the board of directors of Industrial Property Trust Inc. and Black Creek Industrial REIT IV Inc.

Mr. Merriman has been active in acquisition, development, value-added investment opportunities, and operations activities related to industrial and office property acquisitions since 1984. Prior to joining the Black Creek Group, he served for three years as a Managing Director at Stockbridge Capital Group LLC; for seven years as a Managing Director at RREEF Funds where he started CalSmart, a $1.2 billion value-added real estate investment firm with the California Public Employees’ Retirement System; and for five years as Managing Director at Carr America Realty Corporation. Prior to that, Mr. Merriman spent 11 years developing office and industrial property in Southern California with Overton, Moore & Associates.

Mr. Merriman holds a BS in Business Administration from the University of Southern California and an MBA from the University of California at Los Angeles.

 

Is the industrial sector real estate’s current darling? It seems that the sector just keeps expanding due to a variety of factors, including the seismic shift in how Americans shop. According to a recent Wall Street Journal article, development of industrial space in the U.S. is at a 10-year high, and there are no signs of a slowdown any time soon. In fact, roughly 247 million square feet of new industrial space is expected to be delivered this year, the most since 2007, while vacancies are at a 17-year low, according to the WSJ.
 
Black Creek Group has a longstanding history of sponsoring and managing multiple industrial-focused investment vehicles. Blue Vault recently talked to Dwight Merriman, Head of Real Estate for Black Creek Group, about the benefits and opportunities of investing in industrial real estate.
 
What is industrial real estate?
In terms of the types of buildings in which Black Creek Group invests, industrial real estate can be divided into two categories: bulk warehouses and light industrial. In general, a bulk industrial property is a larger building with more than 500,000 square feet, is located outside ‘urban core’ areas, and has higher ceiling heights and wider truck court depths.

 

Fast fact: Physically, industrial real estate accounts for 10.8 billion square feet of area ‘under roof’ in the United States.

 

Light industrial buildings are closer in proximity to urban core areas, and they’re smaller shallow bay buildings that lend themselves well to multiple tenants. “From the eyes of a layperson, they may all appear much the same. However, the modern constructed light industrial building is often the perfect ‘last mile’ building. It’s much closer to the decision maker (purchaser or consumer) who lives near the facility,” Merriman says.

Factors driving growth in the industrial sector
There’s no doubt that two factors – growth in e-commerce and population growth – have created strong demand for industrial real estate. However, it’s not just the Amazons of the world that are absorbing industrial facilities at a rapid pace. “Even though Amazon continues to build out and refine its big box distribution strategy, a multitude of other retailers are also consistently investing in their supply chain to build out distribution channels and their online presence,” Merriman says. “While Amazon was certainly the frontrunner and much earlier in implementing a ‘last mile/last touch’ delivery strategy, many large consumer goods firms are also expanding their e-commerce platforms and logistics networks to sell directly to the consumer.”
 
Citing population growth as another driver, Merriman notes that a growing consumer base, both American and global, is buying goods online, whether it’s golf clubs, clothing, toiletries, or groceries. Population centers in growing cities such as Atlanta, Dallas, Houston, and San Antonio are examples of areas that offer business-friendly environments that continue to spur growth. Merriman also notes that certain areas such as Portland, Denver, Nashville, Charlotte, Austin, and Orlando are emerging ‘lifestyle markets’ with rising populations. “With supply constraints in these markets, rental growth has significantly outpaced the national average in these markets,” he says.

 

Fast facts:
• Industrial vacancy has declined from 10.3% in the 4th quarter of 2010 to 4.9% in the 4th quarter of 2017.
• 50% of the 214 million square feet of new supply delivered in 2017 was pre-leased before construction was even completed.
• 2017 had 204 million square feet of completions and 232 million square feet of absorption.

 

Creating value
Black Creek Group invests in buildings in dense urban-like locations, overweighting the top (11) markets on the west and east coasts, along with Chicago, Dallas, Houston and Atlanta. Retrofitting buildings that were constructed in the 1970s and 1980s, especially when they are in scarce urban locations, are often viewed as particularly attractive acquisitions as Black Creek Group will give them a cosmetic upgrade and draft behind the market’s class A rental rate increases.  As Merriman says, “The closer you are to the dense rooftops, the more valuable the real estate.”

When Black Creek Group invests in vintage infill industrial assets, there are certain amenities and features it will add to create value. According to Merriman, these include:

Buying adjacent land to create truck trailer storage. “This is a very attractive feature for tenants,” he says. They also add truck doors when possible.
Removing old, outdated interior finishes so that the tenants can visualize a “clean state” and creating new storefronts.
Repainting the building inside and out and resurfacing the parking lot.
Replacing the roof.
Upgrading to energy efficient warehouse lighting and upgrading sprinkler systems.
Improving the entrance to the property by cutting back landscaping that hides the building and creating new, modern signage.

 

Black Creek Group can then, in turn, increase rental rates to keep up with other buildings in the submarket. When asked what tenants are looking for in industrial properties, Merriman says, “They want to be near major freeways, rail, and ports. It’s important to have an ample labor supply available. They also need cubic storage and trailer storage, and they need to be as close to the consumer as possible.”
 
Black Creek Group’s regionally based acquisitions and operational staff provides strategic sourcing and operations executions. “We are operators and developers that aggregate custom portfolios at the grass roots level brick by brick,” Merriman says. “Our average transaction size is small (less than $20 million), so we can be extra selective in what we acquire.”

What about rising interest rates?
Merriman says that real estate is a hard asset class that tends to hold value during inflationary times. “The cost to build new buildings rises with inflation, and with that rents should rise,” he says. “Interest rates are increasing, but not at a rate that is moderating the appreciation of industrial real estate. The supply/demand fundamentals in industrial are so strong relative to other property types right now, that equity is under allocated to industrial, thus pushing prices higher.”

About Black Creek Group
Black Creek Group is an experienced real estate investment management firm that has bought or built approximately $18 billion of investments over its 25-year history. The company manages diverse investments across the spectrum of commercial real estate- including office, industrial, retail and multifamily. The company has nine offices across North America with more than 300 professionals. Black Creek Group offers a range of investment solutions for both institutional and wealth management channels.

 

Learn more about Black Creek Group on the Blue Vault Sponsor Focus page

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