Longpoint’s Dwight Angelini on Buying an Infill Industrial Portfolio in South Florida

As rising interest rates wreaked havoc on the real estate market, even South Florida’s industrial market — which had been red hot during the height of the COVID-19 pandemic — took a hit. Big-ticket investment sales were few and far between, while the leasing market slowed, putting absorption into the red, and the vacancy rate inched up in the last quarter, according to data from Savills.

 

But the market closed out 2023 on a high point thanks to Longpoint, which purchased a 25-building portfolio across Miami-Dade and Broward counties for $260 million from Seagis Property Group earlier this month. The 1.4 million-square-foot portfolio consists mostly of smaller assets, averaging 56,000 square feet per property, primarily infill logistics assets close to population centers. The sale equated to $186 a square foot.

 

Longpoint, a Boston-based real estate private equity firm, is no stranger to South Florida, having purchased its first industrial property in the market seven years ago. Dwight Angelini, the firm’s founding and managing partner, sat down with Commercial Observer to discuss why Longpoint took the plunge.

 

This interview was edited for length and clarity.

 

Commercial Observer: Walk me through this deal. How did it come about?

 

Dwight Angelini: We started looking [at the portfolio] in August, and we closed the first week of December. We were actually supposed to close in November, but then Chicago Title was hacked. They had some ransomware stuff. We had to change title companies. It was a nightmare.

 

That’s still a relatively quick closing period, given that we’re talking about 25 properties.

 

Yes, it was very quick. We’re pretty efficient. We know these assets. And Seagis, the seller, they’re a great operator. They had a lot of the information. They were well prepared. For example, they knew which roofs were not doing well, and that allowed us on the front end to make certain assumptions. They made our job, frankly, much much easier than it normally is.

 

Is this Longpoint’s largest deal yet?

 

Yes.

 

So you’re essentially betting the company on this acquisition?

 

I don’t think we are. We raised a $940 million fund in October.

 

Our average deal size is $17 million, $20 million, and our average tenant size is roughly 22,000 square feet. This portfolio just kind of falls squarely in that world. It’s very much in line with what we do. This was just an opportunity to buy more, in a larger transaction than what we’re usually able to.

 

Almost every asset was already in a submarket where we own, or is a neighbor to one of our assets. We’re very bullish on South Florida. It’s growing. I don’t need to sell anybody on Miami.

 

What’s your plan for the portfolio?

 

When we launched our firm in 2015, we wanted to own a lot of infrastructure that has a lot of goods flowing through them and where there’s quick turnarounds, of about 24 to 48 hours. That’s logistics more broadly. Going from a manufacturer to a logistics use or going from a flex office type product to a logistics use, that requires more work, and we’ll do that work depending on the building.

 

The other piece, especially in these infill markets, rents have moved a lot. So in our view if we build the right product, we’re able to move rents pretty significantly. For example, a manufacturer that has a low-margin business, you can’t move rents that much for that tenant, otherwise they just go out of business. So that tenant usually has to leave. Then we lease it to another tenant that is in logistics that has a higher margin and can pay more in rent. That requires a different type of building specifications. And we’ve been able to do that successfully in all of our markets over the last decade.

 

Is it going to take some time since the portfolio is pretty fully leased?

 

It’ll be a three-year process. Buying vacancy and leasing it doesn’t really exist in the infill industrial world. Whether it’s a pandemic or a recession, these buildings — warehouses near population centers — stay leased.

 

How much financing did you get?

 

We haven’t yet. We’re in the process of doing that.

 

Lenders have had their issues with the office portfolios and apartments and all kinds of stuff. But there are lenders in the market. They don’t necessarily need the cost of debt to go down. They just need to cut it to stability, so that it stays within a certain bandwidth.

 

There is available debt for the right sponsors and the right product, and this falls squarely in that target — it’s industrial warehouses and a key market with a top-tier sponsor. Now, we’re not doing 75 percent loan to value. We’ll probably be 50 to 55 percent. So it’s not a crazy risk from our perspective.

 

Do you think you got a little bit of a discount by buying in bulk?

 

I think right now there aren’t as many buyers in the market as there were a year and a half ago. Cost of debt has gone way up. There are people on the sidelines that don’t have capital or aren’t able to raise funds, or large multi-strategy funds that are dealing with different issues like redemption queues.

 

We felt that this is a good opportunity to chase a larger portfolio, which over the last five years has been very challenging for us to buy.

 

And in this challenging environment, how did you raise such a large fund?

 

I see these office guys getting into the industrial space. But we’re not new to industrial. Bob [Robert Provost III, a founding partner of Longpoint] and Reid [Parker, another founding partner] have been doing this for 30-odd years. When I graduated from Harvard Business School in 2004, I think I was the only person that went into the warehouse business, because my professor Arthur Segal founded TA Realty [now one of the largest industrial investors].

 

I think the depth of knowledge of the industrial markets, the relationships that we’ve been able to build over a long period of time with leasing brokers and investment sales brokers has mattered in our ability to access attractive investment opportunities.