Alterra Property Group Raises $500MM for Industrial Fund Targeting West Coast Markets

EQT Exeter Property Group, EQT Exeter Industrial Value Fund VI, Pennsylvania Public School Employees’ Retirement System, San Francisco Bay Area, Seattle, Southern California, Los Angeles City Employees’ Retirement System, LACERA
Photo by Tyler Casey on Unsplash

By Jon Peterson

The industrial market across the nation has been on a tear in recent years, and institutional investors are looking to capitalize on the growth and scarcity of available space by allocating more money into the sector. Philadelphia-based Alterra Property Group is one of these investors, and the company has raised $500 million of commitments for its Alterra IOS Venture Fund II, according to information provided for a board meeting document for the Ventura County Employees’ Retirement Association. This pension fund is one of the investors in the fund with a $35 million commitment.

The expectation is that the commingled fund will be active along the West Coast this year, according to industry sources. This could include investments across the state of California, as well as Pacific Northwest markets of Seattle and Portland. Overall, the fund will be investing in assets that are located in the top 30 MSAs around the country.

The IOS fund will be investing capital into industrial outdoor storage facilities. The properties are typically located in clusters near major transportation modes serving large population areas. Land uses for the properties can involve storage, laydown yards, truck parking, equipment repair, container yards and building materials. The demand drivers associated with these properties can include E-commerce, infrastructure, construction, logistics and transportation.

The commingled fund has a value-add strategy for its investments. The value creation ideas for the property will include mark-to-market rents, sale-leasebacks, build-to-suit and redevelopment. The targeted returns for the fund are a net IRR in the range of 14 percent to 16 percent. The fund is projected to generate 30 percent to 40 percent of its total returns through current cash flow or cash yields of around six percent on an annual basis. The amount of leverage planned for the fund is 65 percent on a loan-to-value basis.

Most of the transactions for the fund will be in the range of $5 million to $15 million. This level of investment will likely place the investments below the radar of most institutional buyers that are looking for much larger transactions on bigger properties.

Alterra sees that the industrial outdoor storage marketplace in highly fragmented market, according to a presentation the manager made to Ventura County. The total market size for the property type is around $130 billion with annual trades of $10 billion to $15 billion with 95 percent of these properties held by private ownership.