A new wave of building on way REIT to break ground on $12 million center near BWI Airport

Speculative surge

AMB and Koll also encouraged by market's dynamics

February 06, 1996|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Security Capital Industrial Trust, the nation's largest owner and developer of industrial real estate, intends to begin construction next month of a new $12 million distribution center in a business park near the Baltimore/Washington International Airport.

The Denver-based real estate investment trust's (REIT) decision to build two new buildings is the first in an anticipated wave of purely speculative development in the Baltimore area. Various institutional owners, including AMB Realty Advisors and Koll Investment Management, are also contemplating such moves because of improving market fundamentals.

"We believe we have a good understanding of the market's dynamics," said David L. Welch, a Security Capital vice president. "We feel there's enough demand and a shortage of Class A warehouse space that justifies new building."

Security Capital's plan comes on the heels of a recent 200,000-square-foot lease by the Fritz Cos. Inc. for a renovated and expanded building owned by Bavar Properties Group in the same Anne Arundel County business hub, the 300-acre Baltimore Commons Industrial Park.

Many local commercial real estate analysts viewed that commitment as the spark that would ignite a firestorm of new speculative development. Mr. Welch said the Fritz lease had little influence on its decision.

Security Capital's new 305,000-square-foot Airport Commons Distribution Center development -- slated for completion in September -- will hit the market at a time when vacancy rates are at a historical low of 5 percent, rental rates are increasing and few new buildings are being built, even when tenants have committed. "They will have a real advantage being the first ones out of the ground," said David P. Scheffenacker Jr., president of Preston Partners Inc., a local real estate brokerage firm that will .. be working with Security Capital and Union Realty Partners Inc. of Washington to lease and develop the project.

Security Capital will also have the benefit of multiple financing sources, because of its status as publicly traded company since completing a $37 million initial offering in March 1994.

In 1995, the REIT generated operational income of $84 million on revenues of $158 million.

Security Capital's knowledge of the local market dates to December 1994, when it purchased 12 buildings and land in Prince George's County and Virginia for $37 million. Since then, it has developed 500,000 square feet of industrial space, including a major distribution center in Laurel, for Hitachi Data Systems.

Those projects represent just a fraction of the $500 million Security Capital spent last year to acquire and develop projects.

"They're trying to consolidate the industrial market, and be the single-source provider for large users," said Robert A. Frank, an Alex. Brown & Sons Inc. managing director and REIT analyst.

"No one has ever tried to do that," Mr. Frank said. "They've become large quickly because they're aggressive and their plan is well thought out."

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