Terreno Realty Corporation (TRNO), a real estate investment trust (:REIT), has recently acquired an industrial building spanning 47,000 square feet in San Jose, California. The property was purchased from an unnamed seller for approximately $4.2 million.
The acquisition is part of the long-term strategy of the company to abstain from pursuing ground-up development or land investments, and instead own functional and flexible buildings in infill locations that can be modified to accommodate single and multiple tenants at discounts to replacement cost.
The acquired property is presently 71% leased to two tenants. The multi-tenant industrial building is strategically located in close proximity to the Mineta San Jose International Airport situated in the heart of Silicon Valley. The property is also adjacent to Montague Expressway – a key highway in the region, US 101 – a north-south U.S. highway; and I-880 – an interstate highway in the San Francisco Bay Area. Consequently, the property brings on board unmatched distribution space for the company.
The estimated stabilized cap rate of the asset is 7.4%. Total acquisition cost of the property included the initial purchase price, the effects of marking assumed debt to market, due diligence and closing costs, estimated near-term capital expenditures, and leasing costs necessary to achieve stabilization.
San Francisco-based Terreno Realty owns and operates industrial real estate properties primarily in six major coastal markets of the U.S. These include the high barrier-to-entry markets of Los Angeles, Northern New Jersey/New York City, San Francisco Bay Area, Seattle, Miami and Washington D.C./Baltimore.
As of September 30, 2012, Terreno Realty owned 63 buildings aggregating 4.8 million square feet in high barrier-to-entry markets of Los Angeles, Northern New Jersey/New York City, San Francisco Bay Area, Seattle, Miami and Washington D.C./Baltimore. The properties were approximately 92.6% leased to 97 tenants.
Each of the locations in which Terreno Realty has a significant presence is characterized by a well-established transportation network – seaports, airports, highways and railways that are essential for the swift distribution of goods. In addition, available land in these markets is scarce, resulting in steep barriers for the development of new and competing properties.
We have a Neutral rating on Terreno Realty, which presently has a Zacks #3 Rank translating into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #3 Rank for DCT Industrial Trust Inc. (DCT), one of the competitors of Terreno Realty.
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