CORONAVIRUS COVERAGE PANDEMIC SHINES LIGHT ON LACK OF COLD STORAGE SPACE Brian Niven Vice President of Cold Storage, Bridge Development Partners mal life, many newly health-conscious Americans may end up demanding more assurances about the way it is produced, stored and delivered. A similar series of events played out a decade ago, when a prolonged spike in foodborne illnesses gave rise to the Food Safety Modernization Act in 2011. The cold storage and food in-dustries are still adapting to the new regulations put into place as a result of the legislation, which applies to perishable food stored in open-air set-tings. If many of the existing rules are ex -panded to include cold storage and the entire delivery process, it will cre-ate massive demand for new facili-ties that can meet those new require-ments. The majority of current cold storage stock is outdated and would face a difficult path to meet any new standards, so any further regulations would need to be phased in over time to allow new supply to be developed. As we begin to reopen most parts of our society following the COVID-19 pandemic that devastated our country and economy earlier this year, many in the commercial real estate indus-try are beginning to take stock of the massive shifts it may have put into motion. While the pandemic has decimat-ed many sectors — shuttering retail shops, leaving offices empty and set -ting off an exodus of urban apartment dwellers — prospects for industrial properties have remained strong. De-mand for warehouses of all kinds has been soaring in recent years, largely on the back of the growing e-commerce industry, and the sidelining of brick-and-mortar stores has only strength-ened those tailwinds. However, that does not mean that the sector will not face challenges in the years to come. While most of the country’s core markets have a healthy pipeline of dry warehouse development that will help meet demand from users, the same cannot be said for an increasing-ly essential part of our supply chain — cold storage facilities. Vacancy for cold storage was already at or near zero across the country, but the pan-demic has set off a chain of events that is likely to place significant stress on our supply chain of food and other goods that require a controlled tem-perature environment. As has been widely noted, lock-down orders and social distancing measures have caused more people than ever before to embrace home grocery delivery. More than one-third of Americans bought groceries online during the first month of the national lockdown, according to a survey published by Gordon Haskett Research Advisors. That’s tens of millions for the first time. Should even a fraction of those first-time buyers switch to a delivery model for the foreseeable future, de-mand for cold storage facilities could rise even more quickly, and the com-mercial real estate and food industries will need to adapt quickly. Challenges ahead Creating the necessary supply of cold storage will be a significant chal -lenge. While many major industrial players have begun large-scale ef-forts to help keep up — including an estimated $400 million cold storage fund Bridge launched with Prudential last year — the construction of these kinds of modern facilities is extreme -ly labor-and capital-intensive and is largely out of reach for small-scale de-velopers. Furthermore, the difficulties around converting currently dry warehouses would be similarly complex — essen -tially requiring the construction of a box within a box. On a more granu -lar level, it would require a series of Chicago-based Karis Cold Storage recently purchased this 42,000-square-foot cold storage building in Chicago’s Brighton Park neighborhood for $7.5 million. NAI Hiffman brokered the sale and negotiated a six-year lease with the tenant, Moesle Meat Co. large-scale undertakings that include: the removal of floors; the installation of glycol lines that provide underfloor heating; upgraded dock doors with 360-degree dock seals to prevent va-por infiltration; extensive insulation; refrigeration equipment; structural steel racking; and an abundance of other conversions. Due to the com-plexity of construction, limited cold storage market data and immense costs, very few developers have and will undertake the task. The COVID-19 pandemic has com-pletely altered the fabric of the com-mercial real estate market we knew, leaving far more questions than an-swers. When it comes to the industrial sector, however, we are fortunate that it has largely accelerated the existing market forces that were creating al-ready unprecedented need for mod-ern warehousing space. No shortage of solutions have already been floated as the industry looks to rebound, but the current lack of cold storage space presents a much more difficult pre -dicament. As we face down rapid and stark changes in the way we work, shop and eat, we will need many voices to work in concert and pave the way to a more stable, healthy and prosperous future. Dougherty Mortgage is now Colliers Mortgage We are excited to share that we have joined Colliers International. Dougherty’s senior leadership team will remain significant shareholders and continue to drive operations. Colliers Mortgage will encompass all business previously conducted under Dougherty Mortgage and Dougherty Funding, providing access to federal agency loan programs, structuring competitive financing packages for borrowers and lenders, and helping to identify capital sources for capitalization requirements. We look forward to serving you as part of the Colliers Team! AFFORDABLE MULTIFAMILY FINANCING EXPERTS Colliers Mortgage is the brand used by Colliers Mortgage LLC and Colliers Funding LLC. New regulations One seemingly under-the-radar fac-tor in this acceleration for the need in cold storage is the potential for new regulations around our food. COVID-19 has already exposed many of the weaknesses in our food supply chain, and as we return to a more nor-Corporate Office: 612.317.2100 | 866.922.0786 | colliers.com Accelerating success. www.REBusinessOnline.com Heartland Real Estate Business • July 2020 • 13
Heartland Real Estate Business July 2020: Page 13
