Borrower profile: Faropoint charts a low-leverage approach to last-mile warehouses

The data-driven manager sees mid-market, last-mile warehouses as a once and future investment strategy.

As North America continues to grapple with sky-high inflation and massive supply chain disruptions, Hoboken-based manager Faropoint is taking a low-leverage approach to its preferred asset class: mid-sized, last-mile warehouses.

“The global supply chain has evolved tremendously over the past decade,” said Jacob Rich, senior vice-president and Texas markets officer at Faropoint. “When you look at the consumer demand today, there is an expectation of a shorter timeframe for fulfillments. In some sectors we’re seeing fulfillment requirements in as little as 20 minutes post order.”

Founded in 2012, Faropoint specializes in acquiring and managing mid-market last-mile logistic centers in or near major distribution hubs throughout the Midwest, Southwest and Northeast United States. Faropoint defines its target property as an asset of less than 300,000 square feet, with Rich noting there has been explosive growth of smaller firms entering the e-commerce space that do not need a massive amount of distribution space.

The economy has shifted over the last several years as new start-ups have emerged,” Rich said.The increase of small and medium-sized businesses has generated significant demand for industrial real estate in smaller warehouse footprints.”

These businesses are less focused on large, expensive warehouses and more interested in speed, execution and customer service. “Those competing in the high-demand fulfillment sector would rather take smaller-sized properties spread throughout the metroplex to make sure they can fulfill obligations to the consumer,” Rich added.

And while demand for this specific type of real estate is only growing, supply is anything but abundant. “We focus specifically in the middle-market sector as we find it’s a niche in the industry where there is finite supply, yet a steady increase in demand,” Rich said.

Low-leverage approach 

While Faropoint does tap the debt market, it tries to use as little leverage as possible when acquiring their properties. 

Being an all-cash buyer is one of the advantages Faropoint has from an execution standpoint,” Rich said. “Debt is a relevant component to what we do. However, we’re a bit unique in that we don’t look at the debt first. We are first and foremost fundamental driven buyers.”

The company in May completed $59 million of acquisitions throughout the Southwest and, despite secular headwinds, Faropoint isn’t slowing down anytime soon. Faropoint believes the middle-market industrial sector will continue to flourish as new entrants come into the market, despite the rising interest rate environment,” Rich said.