Borrower view: Monday Properties plans industrial pivot

Monday Properties has historically also pivoted its portfolio as markets dynamics change.

Monday Properties, a New York-based real estate manager with a portfolio focused primarily on the multifamily and suburban office sectors, is making its first industrial investments at a time when the firm sees an opportunity to acquire what it believes are dislocated assets across the four core real estate food groups.

Historically, the firm has been known for its office and multifamily portfolios and has been an active buyer and developer of assets in New York, Washington, DC, and other markets in the Northeast and Southeast. But Monday Properties has historically also pivoted its portfolio as markets dynamics change, said Paul Vosper, executive vice-president of business strategy.

As part of this shift, the firm last month acquired 1 Half Moon Bay Drive, a 120,000 square foot industrial warehouse and distribution center in Westchester Country, New York. The property, which includes the potential to link to a nearby rail line, is fully occupied by regional tire wholesaler Max Finkelstein.

“Our goal has been to diversify beyond our core competencies in office and multifamily into other assets classes and geographies. Industrial has become a very strong real estate sector to invest in. Last-mile warehousing and distribution tenants have become significant users of real estate, partially due to growth in the e-commerce market,” said Adam Carr, executive vice-president of acquisitions and capital transactions.

The opportunity to acquire 1 Half Moon Bay Drive came to the firm on an off-market basis and there were several factors which made the firm move ahead with the deal, Carr said.

“Westchester County is a very space-constrained area for industrial property. There is very little land to build and no new construction to speak of. Meanwhile, demand is strong for users looking for proximity to the New York Metro area and surrounding points North,” Carr added.

The property, originally built in the 1970s, was expanded in 2005. While there is a value-added component, Monday Properties believes it would not require a tremendous lift if it had to re-lease the asset, Carr added.

“Whenever you’re looking to gain a foothold in a different asset class, you need to build a track record. That will take some time and selectivity with the types of acquisitions you pursue. Once you build a strong track record, you can raise capital and pursue that strategy more broadly than opportunistically,” Carr said.

Changing uses

The firm is seeking to expand amid generational dislocation in the commercial property markets, Vosper said.

“We are experiencing a classic credit crunch, where the banking sector is unable or unwilling to lend. Given that real estate is typically a levered asset class, this credit cycle is causing a liquidity crisis and a significant repricing of assets. That is exacerbated by substantial amounts of near-term leverage from a low interest rate environment maturing into a higher interest rate environment. This will create one of the most attractive opportunities for investment, whether it is multifamily, industrial or office,” Vosper said.

While the firm sold its New York office portfolio in 2013 in favor of suburban office and multifamily assets, Monday Properties is taking a flexible approach to potential opportunities as tenants change the way they use real estate in the office, retail, multifamily and industrial sectors, Vosper added.

“We are looking at our ability to take obsolete assets, whether office or industrial, and determine the best use case or necessary improvements. This will be a long-term strategy for the company. For these sectors, tenant demands are changing, and we need to adapt as well,” Vosper said.

Outlook

Echoing a widely held belief among commercial real estate professionals, Monday Properties anticipates that 2025 and 2026 will be two of the best vintage years for real estate investing.

“We are snipers, and we are not going to be going out and buying massive portfolios of distressed loans. But we are looking for great assets that have been under-loved, poorly managed or where the capital structure is wrong. We are looking to provide rescue capital and work with lenders to stabilize and improve a good asset,” Vosper said. “Assets typically do not require more leverage, they require equity capital to invest in attracting tenants. Where the private capital is looking to lend on a preferred basis at high interest rates, a partner who can provide equity capital is sought after and highly rewarded for providing that capital.”

The firm also is aware that there are always times when particular asset classes are out of favor, with office and retail being prime examples, Vosper said.

“Selective contrarians will be well rewarded by the coming vintage years. At a time when, for example, everyone is running for the hills in office, it is time to selectively buy office,” Vosper said. “We are looking across the property types now and figuring out the best place to position ourselves. It is not necessarily that industrial is a particularly attractive asset class today, it is that we want to be in the largest and most liquid property types and, in a cyclical asset class, it needs to be a part of our broader arsenal in the search for dislocated and mispriced assets to find the best relative value.”