New York-based Iridium Capital Management, a hedge fund that has succeeded by investing in triple-net leases of major retail chains, is now making its first move into the Midwest, largely because this section of the country boasts such strong industrial properties and single-tenant medical facilities.
Because of a decline in interest rates, Iridium is moving its investment dollars from the retail sector to such property types as FedEx distribution centers close to airports and high-performing single-tenant medical facilites. Both of these property types can be found in abundance in the Midwest, and Iridium is already exploring its investment options here.
Marilyn Kane, who launched the fund in 2010 and serves as Iridium’s president, said that she’s looking forward to investing in the Midwest.
“We had a good run with our retail investments,” Kane said. “Dollar General, in particular, was good for us. We bought them like crazy at the right time. It served us well. But the industrial sector appeals to us. We are ready to move from retail to industrial.”
For Kane, these industrial and medical properties all have one important factor in common: Good credit.
“Our focus is on credit,” Kane said. “We are looking for absolute yields. The credit of these companies is excellent. It’s not that we prefer industrial over retail, it’s just that the metrics we look for are all realized with industrial.”
Iridium is now selling 10 of its Dollar General stores, and Kane says interest in the properties is high. Industrial properties are more expensive than retail ones. When Iridium does sell its 10 Dollar Generals, the sale won’t generate enough to allow the company to purchase 10 industrial properties.
But the sale will give Iridium more than enough to get a solid start in the industrial market.
And the Midwest gives Iridium the best place to get this start, Kane said. Iridium doesn’t invest much in the tri-state area surrounding its New York headquarters. That’s because the properties surrounding New York City tend to be priced too high.
“You pay a lot more for a property here, but you don’t necessarily get the best value. But we are very comfortable with the Midwest,” Kane said. “The availability of the right properties in the Midwest means that investing here makes absolute sense. We are going to be very actively involved in seeking out properties.”
Industrial properties are performing well now, one of the stronger commercial classes. Spec building of industrial properties has even returned to the Midwest, with markets such as Indianapolis and Louisville — to name just two — experiencing a mini-boom in spec industrial construction.
“I think a lot of people are feeling more optimistic about the economy and its growth,” Kane said. “The industrial sector has to stay active as our country’s economy grows. We need distribution centers for all those Dollar Generals, Sam’s Clubs, Walgreens and Walmarts of the world. They all need to have their products distributed.”