In May, RJW Logistics announced that it had leased a new 452,000-square-foot Class A industrial building in suburban Lockport to expand its warehouse and distribution operations in the Chicago area. When reviewing the biggest lease deals during the second quarter of 2021, RJW’s commitment to the Lockport space was the largest lease along the I-55 corridor and the sixth overall biggest industrial lease in the Chicago region.
“Just wait until Q1 and Q2 of next year, and we’ll be on [the list of biggest leases] again,” says Kevin Williamson, CEO of RJW Logistics, on the company’s big lease commitments and rapid growth in the area.
But RJW Logistics isn’t alone. Kenco Logistics, Dynamic 3PL, and of course, Amazon, are other businesses committing to large lease deals for industrial space in and around Chicago for warehousing and distribution.
The industrial real estate boom occurring in major metros throughout the country can largely be attributed to the exploding demand and opportunities within the broader logistics realm.
And the Chicagoland area is no different.
If anything, the region’s long standing reputation as a vital transportation and freight hub has only bolstered its logistics credentials and led to a flood of new investment as developers feverishly add new Class A industrial space along the Chicago area’s major interstate and rail arteries.
Companies like RJW Logistics are meeting an usual moment; one where the very nature of retail, e-commerce, and supply chain logistics are evolving at a breakneck pace. According to Williamson, the company has leased up 3.2 million square feet of space since 2016, and plans to take on another 500,000 to 1 million square feet of space over the next 12 months.
In its May announcement, RJW Logistics said that its Lockport facility would service 60 to 100 customers and handle 550,000 pallets and ship over 66 million cases annually. And that’s just one building in its network of seven logistics facilities in the Chicago area.
And there’s still more room to grow because there is still a major need for retailers to keep up with supply and demand, Williamson says. But there’s also been increasing competition within the 3PLs as well.
“Recently, you’ve seen a surge of growth because there’s been disruption within the supply chain,” Williamson explains. “Since June, we have seen 12% of cancellations of POs due to lack of inventory. [Retail customers] don’t have enough inventory to hold in our space and to fulfill the orders of the demand by the consumer — that’s huge because it means that we need 12% more space than we actually have.”
The company has taken a different approach to its logistics strategy by consolidating its operations and expansion efforts solely within the Chicago area. This not only gives RJW Logistics a greater regional presence, but the model is really designed for optimal performance, Williamson suggests.
“These buildings that we’re putting up are organic growth that’s not necessarily expansion with the suppliers that are in our program,” says Williamson. “It’s suppliers that are coming to us because other 3PLs are not performing at a high level and don’t have the infrastructure and the technology in order to keep up with that.”
That infrastructure, he suggests, is the model where RJW Logistics operates its own buildings and manages its own fleet of vehicles while employing a single-market methodology.
There are numerous benefits to the model, Williamson says, from handling last-minute staffing changes between nearby facilities, to meeting on-time performance standards for local customers, and even attractiveness as a tenant to industrial landlords because of the sheer number and diversity of client retailers.
And because each building serves dozens of client businesses, there are economies of scale for both large and small retailers in delivery of goods.
“The methodology that we use for that one-inventory strategy is really proving itself through the pandemic,” he says of the business model. “We’ve got 1,600 employees within five miles of one another, so we have no disruption within our seven buildings.”
Another entity who is seeking to quickly become a regional player in the booming distribution and last-mile delivery game is the Israel-based Faropoint. The company announced its first purchase of a Chicago-area industrial building only in June, but has set an ambitious pace for future property acquisitions, says Senior Vice President, Jordan Kovalsky, who manages the midwest region for Faropoint.
“Our first fund, which launched in 2018, had about $350 million in purchasing power,” Kovalsky says. “This next one, which we just kicked off in July, is over $1 billion in purchasing power.”
Kovalsky says that Faropoint is on pace to close 100 assets this year, doubling what it did in 2020. The company is targeting smaller buildings, for example, the 30,000-square-foot Glendale Heights property Faropoint paid $2.2 million for in June or the 43,500-square-foot building in Mount Prospect the company closed on in August.
Acquiring smaller buildings not only allows Faropoint to level up its portfolio quickly, but there’s still a lot to be determined in how last-mile logistics will ultimately look in the coming years, Kovalsky suggests.
“If you asked what last-mile was a few years ago, it could be a 200,000-, 300,000-, or 400,000-square-foot building, and that’s really pivoted to where now you might see a 20,000-square-foot building in the heart of Chicago,” she explains. “They’re not necessarily racking, but they are distributing product that needs to be in downtown Chicago in under 10 minutes.”
But it’s not just downtown Chicago. There’s a need for last mile delivery facilities in many other inner- and outer-ring suburbs and edge cities, she adds.
But being the new kid on the block has its challenges, Kovalsky concedes.
“Faropoint gives us the leverage to be a good buyer, which I believe helps, but those first couple of deals were challenging,” she says of the entry into the Chicago market. “With all of that increased competition, I think it’s probably pushing pricing a little bit — whether that’s justified or not, I’m not sure — but it’s also just increasing the competition on the bid sheet.”
Building inroads with the brokerage community is going to be a key to Faropoint’s success in the Chicago market as there’s so much competition for deals that commercial brokers may not have to shop properties around like they used to.
“A lot of these deals were probably trading off market before, but now brokers are saying, well, I may as well bring [an opportunity] to three, four or five groups, just to see if I can push pricing a little bit,” Kovalsky describes. “We probably would have bought twice as many deals by now if not for that, but we’re almost at a million square feet and we just started buying here four months ago.”
This article also appears in the September 2021 issue of Chicago Industrial Properties.