🔒Winstanley’s latest buying, building spree shows faith in region’s active, but slowing industrial market

Soaring interest rates and economic jitters have slowed the Greater Hartford industrial market this year, but demand remains healthy, providing opportunities for well-financed investors and developers, experts say.

Massachusetts-based Winstanley Enterprises is a good example.

The real estate investment and development firm has been one of the most active industrial developers north of Hartford since 2015, when it paid $12 million for Hallmark’s 1-million-square-foot distribution center and 324 associated acres in Enfield.

The firm has made several big plays over the past three months.

In August, Winstanley paid $122.3 million for a 1-million-square-foot Windsor warehouse, at 200 Old Iron Ore Road, that hosts an Amazon fulfillment center under a long-term lease. In October, it paid $4.6 million for a 133.6-acre Enfield site, at 1679 King St., already approved for more than 600,000 square feet of logistics development.

Days later, Winstanley announced it had settled a legal challenge brought by Enfield residents, which will allow it to build an 819,000-square-foot warehouse at the former Hallmark campus, on Bacon Road.

Winstanley will partner with Kansas City-based NorthPoint Development on a roughly $135 million construction project at the Hallmark site, expected to launch early next year.

That development is moving ahead without an identified user, a big show of faith in the market.

Adam Winstanley, a principal in his family’s firm, said high interest rates, wary lenders and stiffening resistance to warehouse development in some communities have made it more difficult to build.

But demand remains strong and inventory tight for logistics space north of Hartford. That means developers who manage to open quality industrial properties are very likely to find willing renters, Winstanley said.

“I believe the north-of-Hartford market between Springfield and Hartford is the preferred zone for distribution in New England,” Winstanley said. “It has consistently attracted large tenants.”

The area has great highway access to New York and New England. Proximity to Hartford and Springfield provides access to two great labor pools, he said.

“So, we are doubling down on our investments,” Winstanley said. “We are going to continue developing properties and acquiring properties we think could benefit our portfolio in this region.”

Winstanley said the current economic cycle has eased construction costs. Prices for industrial land are beginning to follow suit, opening opportunities for well-financed and experienced builders/investors.

Winstanley said his company typically uses relatively small amounts of debt, insulating it from the tight lending market. He said his firm is considering investment opportunities in several other states as well.

“In the last six months, I’ve seen more opportunities than I’ve seen in the last two years,” Winstanley said.

Strong fundamentals

Winstanley isn’t the only big player making moves in the Greater Hartford region.

A joint venture between Los Angeles-based real estate investor Tryperion Holdings and real estate management firm Greenmont Group in September paid $17.75 million for a 450,625-square-foot, 60-year-old warehouse at 295 Ella Grasso Turnpike in Windsor Locks.

Jeffrey Karsh, managing principal and co-founder of Tryperion, said the industrial market nationally has not been immune to the slowing economy. But it has proven more resilient than other real estate sectors.

“The fundamentals are still strong in industrial,” Karsh said. “You couple that with what I call a capital-markets recession (increasingly inaccessible capital), and all of the sudden the relative attractiveness of industrial is strong to investors and is sort of a bastion of security.”

Karsh predicts the industrial sector will remain strong until a true recession hits.

The scarcity of capital from lenders has caused prices to come down for some properties, creating more “value-add” opportunities, which is Tryperion’s model, Karsh said.

That’s when an investor/developer buys a property it considers underperforming — either because it needs renovations or has significant vacancies— and then improves, and eventually resells it.

Karsh said the Windsor Locks property was underpriced largely because its main tenant, international contractor Permasteelisa, is vacating 256,000 square feet at the end of November.

Karsh said the company was paying “a very low rent,” which means the new owners will be able to fill it at more profitable market-rate rents.

Launched in 2013, Tryperion has invested more than $1 billion in office, retail, hotel, industrial and multifamily properties in 11 states. Its investors include institutional partners, family offices and high-net-worth individuals.

Karsh said opportunities for those with access to capital will increase as interest rates squeeze others out. Tryperion is focused on taking advantage of anticipated price corrections, Karsh said.

“We’ve known industrial has been strong for years, but when you match it with the prices they were commanding, the industrial buildings, we didn’t like those investments,” Karsh said. “But now, you couple today’s fundamentals with today’s prices, which have been corrected to a certain degree, and we like that.”

Karsh said he’s confident in Greater Hartford’s industrial market, which is less than 3% vacant.

Strong numbers

Vacancies in the region have been falling for at least three years, while lease rates have gradually risen.

Industrial vacancies in Greater Hartford dipped from 7.2% at the end of the second quarter in 2021, to 5.3% at the end of the second quarter in 2022, to 3.1% at the same point this year, according to market research by CBRE.

During the same period, average rents per square foot rose from $5.30 to $5.66.

Winstanley said he expects demand in the Greater Hartford industrial market to remain strong, given the scarcity of new spaces.

The region has 3.2 million square feet of industrial space under construction, according to CBRE. But most of that is already claimed.

Massachusetts-based National Development, for example, has signed leases with Lowe’s Home Improvement and online retailer Wayfair for adjacent 1.3 million- and 1.2 million-square-foot buildings it is erecting at Rentschler Field in East Hartford.

Target has signed a lease for a 530,000-square-foot warehouse Kansas City-based NorthPoint has nearly completed in Windsor, at 500 Groton Road. Winstanley Enterprises sold NorthPoint the 93.78-acre development site for $43.5 million in August.

Adam Winstanley said he wouldn’t build the 819,000-square-foot building on Hallmark’s former Enfield campus, at 35 Bacon Road, if there were other large industrial buildings being built speculatively. But right now, there are no other permitted sites north of Hartford, he said.

“If there are no sites permitted and no supply coming online, I feel good we will be able to attract a tenant,” Winstanley said.

That sentiment was echoed by Christopher Metcalfe, a senior vice president with CBRE, which is marketing the Enfield site for Winstanley.

“We are quite confident on the demand profile,” Metcalfe said. “That is the only fully entitled site in Connecticut that can do anything close to that size.”

Kyle Roberts, also a senior vice president with CBRE, said higher interest rates are pushing lease rates up, pressuring deals. That has prompted a slowdown in the number of industrial sites being built.

He said there is appetite for higher rents on existing class A and B spaces.

“For the first time in a long time rates are pushing higher across the board with all landlords, which is really reflective of demand,” Roberts said.

Roberts said northern Connecticut has proven attractive given its relatively easy access to other points in New England as well as New York. It is also generally easier to gain local permits for construction, when compared to land-use processes in Massachusetts.

But it’s getting harder, given increasing resistance to warehousing in some communities.

Windsor Locks, for example, is considering a moratorium on zone change requests for logistics projects. It would not impact zones where warehousing and distribution facilities are already allowed by right.

Metcalfe said tenants, so far, have proven willing to absorb higher lease costs, as it represents a relatively small fraction of their overall expenses.

Activity slowing, but still healthy

Art Ross, executive managing director of brokerage firm Newmark’s Hartford office, said activity in the Greater Hartford market has been slowing since early 2023, but remains “very healthy.”

“It’s not just Connecticut,” Ross said. “It’s kind of everywhere. There are still big deals being done, but it’s not quite as active.”

He expects demand to remain high given the continued embrace of e-commerce — which requires modern logistics spaces — and Connecticut’s increasingly strong defense manufacturing sector.

“The groups that have cash and equity and believe in the market — and there are still plenty of them — are making investments,” Ross said.