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Co-Warehousing Comes to the Industrial Sector

How one private equity real estate firm is trying to bring flexible industrial facilities to the market in U.S. cities with its Portal Warehousing offering.

The past few years have been a time of massive growth in the U.S. industrial sector. Industrial space has been at such a premium many tenants have been signing leases in anticipation of future growth, while more and more developers have invested in building multi-story warehouses in urban cores.

But not all industrial tenants can or want to invest in large-scale warehouse facilities right away and sign long-term leases. Some start-ups, for example, may want to start with a smaller unit that fits their current business volume and grow from there. Other companies looking at expansion might also want a testing ground to play with their logistics networks. To serve that segment of industrial end-users private equity real estate firm Capstone Equities launched its Portal Warehousing concept last year, a sort of flexible warehouse solution offering the smaller spaces and shared amenities that have become common in the office co-working sector on a membership basis.

The company’s first Portal location opened this month in Salt Lake City, with a 30,000-sq.-ft. incubator that offers spaces ranging in size from 250 sq. ft. to 2,500 sq. ft. on a short-term basis. Amenities at the property include high-speed Internet connection, reception services, business growth support and community events, among other offerings. Capstone Equities executives say that out of the 22 suites available at the property, 14 already have tenant commitments.

Going forward, Capstone plans to expand this offering to several other cities, including Brooklyn, N.Y., Las Vegas, Los Angeles and Phoenix.

WMRE recently spoke with Alex Morrison, Portal Warehousing CEO at Capstone, about what types of tenants the company hopes to attract, what kinds of spaces it’s looking for and how its views the future of the concept.

This Q&A has been edited for length, style and clarity.

WMRE: What types of spaces are offered to tenants in through Portal Warehousing and how do they differ from traditional warehouses?

Alex-Morrison.jpgAlex Morrison: Traditionally, industrial space is only available in large sizes (minimum 5,000 sq. ft.) and [through] long-term leases (five years). Small spaces with flexible terms generally do not exist, relegating growing businesses to working out of garages, self-storage facilities or corners of other people’s warehouses.

Portal is institutionalizing the co-warehousing space. We give access to high-quality space with critical logistics infrastructure to a company of any size. Spaces range in size from as small as 50 sq. ft. up to 2,500 sq. ft., and everywhere in between. We allow companies to take on just the right amount of space they need today, with the flexibility to grow into more space as their business grows.

We’re reimagining what a warehouse is, bringing in amenities that people have become used to in co-working spaces, but do not exist in industrial, such as art, networking and collaboration space, coffee bars and photo booths. Portal turns warehouses into space for people too, not just product.

WMRE: What types of companies does this best serve?

Alex Morrison: Portal is a fit for companies with space needs for both physical products and people. We’re a great fit for e-commerce merchants of any size, logistics companies and growing businesses. Portal’s current customers include e-commerce merchants that are just growing out of their garages; established brands using the space to run their D2C operation or prototyping new products; and national companies generating [more than] $1 billion year in revenue that need overflow storage space.

WMRE: How does Capstone Equities source new properties for Portal Warehousing? 

Alex Morrison: Capstone Equities has been investing in real estate and real estate operating businesses for the past 15 years, with a track record of over $2.5 billion of invested capital. Capstone has extensive relationships within the brokerage community, private-equity ownership groups and high-net-worth individuals with private portfolios that it uses to source new space.

Capstone also has its own balance sheet, which it will use to opportunistically to acquire properties for Portal to operate. As Portal’s first locations have opened to strong tenant interest, we’re seeing more opportunities from landlords who are interested in partnering with Portal to amenitize their industrial portfolios.

WMRE: How many portal warehouses does your company plan to open and in which markets? Why did you choose these markets? What is your schedule for opening new Portal facilities?

Alex Morrison: Today, Portal has two facilities. Its Salt Lake City facility opened in July 2022, and it’s Phoenix facility is opening in August 2022. Portal has partnered with major institutional landlords for the first two properties.

Salt Lake City and Phoenix were chosen for a variety of reasons, including population growth, e-commerce activity, economics and favorable business climates. Looking forward, Portal plans to select several new markets by the end of 2022. It’s planning to open 10 locations in 2023, targeting infill, last-mile locations in primary and secondary markets.

WMRE: How do rates per square foot at Portal properties compare to traditional warehouses? What kind of lease terms does Portal offer tenants? 

Alex Morrison: Portal offers flexible terms that range from three months to one year. Comparing rates per square foot at Portal to traditional warehousing is an apples-to-oranges comparison. Portal’s suites range in size from 100 to 2,500 sq. ft., which is generally non-existent for industrial space. Portal memberships include access to private space and shared access to dock and grade doors, logistics equipment, an office area and other amenities.

WMRE: Your company also offers to help retail startups set up fulfillment operations, to access the best shipping rates through its aggregated volume rates, to secure new capital and provide mentorship. What is the additional charge for these services or are your rates all-inclusive?

Alex Morrison: By bringing merchants under one roof, we can provide benefits to all of the members in our facilities that are difficult to replicate on their own. Right now, our services are all-inclusive and include items like shipping/receiving assistance, a network of local mentors and consultants to help with starting and growing a business and access to information on best practices.

The current world of e-commerce is fragmented, and so is the information on common pitfalls and best practices. We’re creating a network where tenants can learn from each other and grow together.

WMRE: How are you marketing Portal Warehousing?

Alex Morrison: Co-warehousing is a completely new industry. Because of this we work hard to create brand awareness in each market. We do this by creating strong ties with entrepreneurial clusters, local brokers and e-commerce communities. We want Portal to become a gathering place for companies and brands with physical products, so we hold events, invite speakers and offer our space as a venue to community members.

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