By TED CARTER
A warehouse distribution model Jackson’s EastGroup Properties conceived nearly 20 years ago has found itself well situated to benefit from today’s “must-have-it-now” retail demand.
“People want stuff and they want it quick,” said Leland Speed, the soon-to-retire founder and chairman of the real estate investment trust, or REIT. He opened the doors of the public held company in Jackson on June 1, 1978 and grew it into an operation with 300-plus buildings of nearly 36 million square feet and market capitalization of $2.8 billion.
EastGroup Properties began the 1990s as a multi-pronged real estate trust with about 1,300 apartment units in six complexes, a half million square feet of space in four office properties and 1.6 million square feet of industrial space in 10 properties. With a switch to its current-day small industrial-space niche, EastGroup by 1997 owned 9.4 million square feet of industrial and distribution space.
Today, its focus is on building and leasing industrial and distribution spaces of from 5,000 to 50,000 square feet in the booming Sunbelt metro markets of California, Arizona, Texas, Florida and North Carolina. EastGroup typically puts the properties, modern in appearance with well landscaped surroundings, near major airports or freeway interchanges.
The limited size of its distribution centers takes EastGroup out of contention for signing the likes of giant online retailers such as Amazon and Apple. But those buildings of 50,000 square feet or less strongly appeal to national retailers such as Nike that must fill same-day orders from merchandise sellers in malls and discount centers in fast-growing Sunbelt cities such as Orlando.
These “urban logistics” centers hold similar appeal to drug-fulfillment companies that must fill and mail out millions of prescription pharmaceuticals daily.
EastGroup is not doing much leasing to e-commerce companies but that could change – and soon. The Wall Street Daily reported last week that e-commerce “has awoken the once sleepy” industrial REIT sector which has underperformed other REITs for nearly two decades. E-commerce requires nearly 300 percent more logistics space compared with brick-and-mortar counterparts, Wall Street Daily said.
“Today, e-commerce companies are using as much as 30 percent of industrial space,” the WSD report noted.
Commercial real estate tracker CoStar in February cited EastGroup as a smaller REIT positioned to benefit from the trend toward smaller sized logistics facilities that support same-day deliveries for retailers and manufacturing supply chains.
Such trends fit well with the nimbleness EastGroup’s relatively small size gives it. “As you progress, you kind of see where there is a niche,” Speed said. “We have a lot of very large competitors who can’t move their needle unless they do it with very large projects.”
EastGroup, on the other hand, can build and buy its rentable spaces as the times and markets change. That leaves as main competitors “local sharpshooters” who may have an edge in market and local zoning law knowledge but lack the capital punch of a REIT such as EastGroup, Speed said.
Land around major airports especially appealing, Speed said, because there is only so-much of it.
Though the need for higher and higher stacking of inventories has led to higher and higher warehouse ceilings, warehouses customarily are a single-story. That’s a virtue not found in, say, the office building market, where someone can come in and buy a small parcel of land and erect a 20-story building to compete against your building, Speed said.
With warehouses, once the land around an airport such as Miami’s is filled up, “You quit calling them warehouses and begin calling them annuities,” Speed said.
The small-is-better strategy, especially near airports and interchanges, will be carried forward by veteran real estate executive Marshall Loeb when he swaps his EastGroup COO title for CEO on Jan.1. In the tradition of Speed and current EastGroup CEO David Hoster II, Loeb prefers a lot of small bets to a single large one, especially in the fast-growing Texas cities of Houston, Dallas and Austin.
For Loeb, owner of a Harvard MBA and trained as a CPA at the University of Mississippi and Ernst & Young, the small and varied projects have the added advantage of spacing out the maturities on debt.
The wagers require patience, however. “We are more of a longer term bet on which cities are going to have an above-average growth rate,” said Loeb, who began his career at EastGroup in the 1990s as an intern for Speed and Hoster and returned this spring as COO.
“We’re not in and out of a lot of assets,” he said, and recalled recently selling an industrial building in Houston built during his earlier stint with EastGroup.
Fewer than 2 percent of EastGroup’s assets are in metro Jackson, the largest being a parts supplier to the Nissan plant in Canton. All three company officers – Speed, Hoster and Loeb – say Jackson is well situated as headquarters and will remain in that capacity.
“Mississippi is home,” said Loeb, a Meridian native. He said he’d prefer Jackson Medgar Wiley Evers International Airport had more flight selections, and acknowledged: “If you were just starting a company today, you’d probably pick a city with better travel options.”
But, he added, “the geography works well.”
Jackson, Hoster said, “is really our back office operation. There has been a great pool of accountants to draw from in Jackson. So we see no plans for shifting our headquarters.”
Speed, a Jackson native, put it this way: “We are in 22 cities. No matter where we go we aren’t going to be in 21 of them. We are fine and dandy to remain in Jackson.”
BEFORE YOU GO…
… we’d like to ask for your support. More people are reading the Mississippi Business Journal than ever before, but advertising revenues for all conventional media are falling fast. Unlike many, we do not use a pay wall, because we want to continue providing Mississippi’s most comprehensive business news each and every day. But that takes time, money and hard work. We do it because it is important to us … and equally important to you, if you value the flow of trustworthy news and information which have always kept America strong and free for more than 200 years.
If those who read our content will help fund it, we can continue to bring you the very best in news and information. Please consider joining us as a valued member, or if you prefer, make a one-time contribution.Click for more info