Goldman Sachs unit sees gold in roaring U.S. industrial property space

The battle for a share of the red-hot U.S. industrial property market has been joined by a very big player: Goldman Sachs.

On Monday, New York-based Goldman Sachs Asset Management's (GSAM) private real estate arm said it would be the equity investor in a joint venture to develop the East Coast's first multilevel distribution center: A three-story, 370,000 square foot facility along the docks of the Red Hook section of Brooklyn that is set for completion within the next 12 to 18 months. The unit would not comment on the project's cost.

Seeing the Goldman Sachs name associated with an industrial project is somewhat unusual. That's because the private real estate unit entered the industrial segment just a couple of years ago, and has kept a low, if not invisible, profile since then. The unit has so far invested in 2.6 million square feet of industrial assets, a drop-in-the-bucket considering there is 13.1 billion square feet of occupied industrial space in the U.S., according to data from CBRE Services, the Los Angeles-based real estate services giant.

But as Joe Gorin, co-head of the unit, sees it, footprint size is immaterial relative to where the feet are located. In a fulfillment world fueled by e-commerce deliveries within densely populated urban areas, the future lies with companies who are close to the end customers, according to Gorin. A squat behemoth of a DC sitting 40-50 miles from a big population center, while not off the unit's radar, is not really where it wants to be, Gorin said in a phone interview yesterday.

The industrial market is ripe for the kind of development that was disclosed on Monday, according to Gorin. For that reason, the executive said the Goldman unit isn't worried about getting in at the top of the industrial property bull market, which just entered its eighth year with no end in sight. "There is more supply outside of the urban centers," Gorin said, noting that, by contrast, the vacancy rate for up-to-date industrial space in New York is less than 1 percent.

Not surprisingly, the biggest problem in New York and other high-density markets is an undersupply of quality capacity, he said. At the same time, demand for warehouse and DC space is surging and only expected to increase as last-mile delivery fever grips the nation, he said. A good chunk of what industrial space exists in New York is functionally obsolete and not fit for 21st century distribution, a point that was raised in Monday's announcement.

The Goldman unit is involved in the Red Hook project, known as "640 Columbia" after the street where the DC will be erected, just as an equity investor. However, Gorin notes that the unit will buy, renovate, rebrand (the latter two functions with partners) and own real estate assets as part of what Gorin called the unit's "value-added" strategy.

It doesn't hurt that the unit is owned by a parent with massive financial heft. As of year-end, Goldman Sachs Asset had more than $1.4 trillion in global assets under management.

As of last Sept. 30, the unit managed $1.9 billion of real estate assets across various types of properties. The unit has been involved in real estate since 2011.