Becoming a warehouse king is not what Joseph Svatos had in mind more than a decade ago when he entered the commercial real estate field.
But he and his newly formed company spent $50 million in August to buy 90 acres of commercial property near Baltimore-Washington International Airport, and signs point in the direction of his getting into warehouse development.
"Building warehouses is not very glamorous. But while the markets for office and research and development space have collapsed, the warehouse market is still legitimate. Realistic trades are being made," said Mr. Svatos, who is 36 years old.
That's why the Svatos Co. is launching a warehouse development program on the land it purchased from the Parkway Co. and developer Leslie Legum. Believing there is still money to be made in the under-served warehouse field, Mr. Svatos has decided to build 1.2 million square feet of warehouse space in one of the two industrial parks it bought from Mr. Legum's company, Parkway Corporate Center.
"It's not as far to fall from the roof of a warehouse building as it is to fall from the top of a 10-story office building," said Mr. Svatos, who spent much of his career developing swank office structures in Northern Virginia for Lee Sammis Associates Inc. and says the market for such space has been devastated.
"In office and R&D, you've got a tremendous overhang of new space that's waiting to be leased. In the warehouse market, the new space has been leased or the buildings have been sold to the user. So there's little overhang of space," he says.
Through market research conducted by the company and general experience in the field, the Svatos Co. has identified several markets for warehouse space it believes are especially strong. They include food distributors, retailers, airport cargo storage firms and industrial wholesalers.
Although Svatos has not signed leases with new clients for custom-built warehouses, it has the capability of obtaining financing to build such structures through its joint venture with the Boston Company Real Estate Counsel Inc., a pension fund advisory firm.
"During this tough financial time, this relationship with the Boston Company is especially important because it allows us access to financial markets that aren't available to many other developers," Mr. Svatos says.
The location of Parkway Corporate Center, which straddles Anne Arundel and Howard Counties and is close to the Baltimore-Washington Parkway, Interstate 95 and the expanding Route 100, makes it attractive to warehouse users who want easy distribution of products through the Baltimore-Washington corridor, Mr. Svatos said.
Mr. Svatos, who founded the Washington office of Lee Sammis Associates in 1981, says that while the architectural demands of office and R&D space tenants can be very exacting, those of warehouse clients are straightforward.
Because warehouse development brought with it little of the prestige that came from creating office buildings with fancy architectural flourishes, developers tended to stay away from the field during the 1980s, he said.
"Building a warehouse is basically like building a box. But in this market, it's exciting to at least be doing something," Mr. Svatos said.