Borrower profile: BLP navigates stressed debt markets in portfolio build-out 

The Bridge Investment Group subsidiary has closed 21 logistics deals since its launch seven months ago. 

Bridge Logistics Properties, a subsidiary of Salt Lake City-based Bridge Investment Group, is using its founding partners’ tried-and-true approach to logistics investing to stay ahead of volatile debt markets, rising cap rates and intense competition for well-located properties in its target markets.

The logistics specialist, which has been investing for a little more than seven months, was formed by Jay Cornforth, Brian Gagne and Paul Jones – veteran logistics specialists who most recently filled senior roles at Brookfield Properties. Since opening its door, the firm has made 21 investments.

But it has not always been an easy path, Cornforth told Real Estate Capital USA.

“The debt markets are stressed. And while I think the banking system is really healthy, markets – especially credit markets – are trying to figure out what spreads will look like going forward,” Cornforth, chief executive officer of BLP, said. “If you look at the SOFR curve, it is going to elevate further over the next 12 months. This all means there is some stress right now with lenders and a real gap in spreads. Financing is more expensive and that is having an impact on values.”

Another area of uncertainty is the US economy. “The Atlanta Fed’s data suggests that in Q2 we entered a recession, but there are other indicators that seem to suggest that we won’t hit a recession. So for the time being, we are taking a very cautious approach to new investments. We are going through a period of price discovery and values are resetting. We’re quite cognizant of that,” Cornforth added.

Despite this uncertainty, Cornforth and his partners are using the same approach they have used throughout their careers to source and execute on deals. Cornforth, most recently the global head of industrial at Brookfield, spent many years at AMB earlier in his career.

“Our investment approach hasn’t changed in the 25 years I’ve been investing in the sector because I think we started with the right approach,” Cornforth said. “When I was at AMB, we were an airport and seaport-centric investor and that strategy took us to dense urban environments. Investing in global gateway markets has always been part of our strategy and today it’s even more important.”

While much of logistics investing has changed, a lot has remained the same.

“Companies are on the march toward last-touch delivery times to consumers. That hasn’t changed. But what has changed are the market fundamentals. We are now in a cycle of change, with many predicting a recession, but our fundamentals have never been better,” Cornforth said, citing a national vacancy rate of less than 4 percent.

This low level is a major difference than in past cycles.

“We’ve always gone into recessions with elevated vacancy levels. The other difference is that we never really had real rent growth until 2012, when we were coming out of the great Recession. How industrial operators made money was through cap rate compression – we are now driving value through growth in cash flow, unlike in prior cycles, and that will be a mitigant as we return to pre-covid cap rates,” Cornforth said. “We are not returning to the cap rates we saw the last couple of years. Rent growth above inflation is what will allow us to maintain our returns.”

Another difference is the level of investor interest in the asset class. When Cornforth started out in the field, industrial was really viewed as an emerging institutional asset class.

“Investors were severely under-allocated to industrial. Office and retail were the darlings for many years. Now we are very fortunate that we have so many strong tailwinds of demand. Technology has enabled that transformation – it really enabled a transformation in the supply chains,” Cornforth said. “A great example is a company like Nike which is gaining their margins through an omni-channel approach. Companies see the light and industrial real estate is a profit center for them. They know they have to modernize their supply chains.”

Thinking logistically 

Cornforth and his partners saw a unique, entrepreneurial opportunity at Bridge.

“We met Bob Morse and the senior team at Bridge and we saw a really good cultural and opportunity fit where we could slot in and build out our logistics team with our own fund series,” Cornforth said. “Brookfield was a great experience, but this was an opportunity to create our own funds and independent profile.”

At Bridge, the strategy is sector-driven. “We are sharp shooters. Bridge has got best-in-class operators for multifamily, office, and credit and that is unique and distinctive. That is why we were initially attracted to the platform. It’s also a growing manager that went public last summer,” Cornforth added. “We’re fortunate in that we’re getting into the business as a relatively young asset manager with a lot of good growth opportunities ahead.”

“We are very fortunate to hire or to be able to attract some great talent to our business. A lot of our colleagues come in as partners and they have a really good track record, they’re battle-tested and have lived through some down cycles,” he said. “We’ve got a really strong regional partner set up, with partners in all of the relevant regions.”

The firm operates out of four regions, with what Cornforth describes as “battle-tested” partners heading up each geography. “I’ve been in the logistics business for more than 25 years and with that comes some great relationships and friendships. Our broker network is quite robust, and we’ve been able to attract good capital partners to help invest,” he added.

In today’s environment, the firm prefers coastal gateway markets with high barriers to entry like South Florida, New Jersey and Southern California. Texas is also a key area for the firm, mainly because of the state’s growth dynamics.

“We will continue to grow our investor base and our presence in the markets and with our institutional investors – that is the next logical step as we grow the platform nationally. We will also work to increase our fund offerings so we can be a full-service logistics manager to institutional capital,” Cornforth said.