With office space in flux, developer Ryan adds light industrial buildings to portfolio

Ryan Cos., the Minneapolis developer chiefly known for office buildings and high-profile housing projects, is joining the warehouse craze.

Within the past month, Ryan made acquisitions worth nearly $30 million for light industrial properties in the Minneapolis suburbs.

Last week, it paid $12.5 million for three industrial buildings in Minnetonka with a combined 168,315 square feet. Before that, Ryan paid $16 million for a warehouse in Edina as part of a joint venture with a California-based developer.

"Industrial is in demand these days from both tenants and investors," said Shawn Moore, vice president of acquisitions and assets management. "We view it as a great complement to our development business, which is what we're best known for."

In Minnetonka, Ryan's Minco Portfolio was built in the early 1970s in a mostly residential area along Minnetonka Blvd. At least half of those tenants say they live with five minutes of the building, Moore said, offering tenants easy access to employees and customers.

The buildings are now 99% leased by about 20 tenants including a piano tuner, a specialty fitness training gym and an outdoor apparel company. After one of tenants vacates the building, Ryan will have a 43,000-square-foot vacancy to fill, he said.

"These buildings are close to restaurants and close to several highways and in locations where there's not developable land," Moore said. "We're focused on locations where it's hard to build new light industrial for smaller tenants."

In early January, the company partnered for the first time with California-based Nella Invest on the purchase of the 136,000 square-foot warehouse at 5182 W. 76th St. in Edina.

"It's challenging to replicate this kind of space with new construction in Edina," Moore said. "There are no immediate plans for major renovations and the two long-term tenants will remain in the space."

While Ryan is still active in the development and construction of much larger distribution centers for Target and Amazon, the company will continue seeking smaller, less high-profile buildings at a time of intense demand for industrial and warehouse space in the Twin Cities metro.

The vacancy rate for industrial buildings in the Twin Cities steadily declined last year. The average vacancy rate for that sector was 3.6% in the fourth quarter, according to a new report from Cushman & Wakefield (CW). That's just below the national average and down by half compared with the year-ago period.

Avery Ticer, managing director of capital markets for CW, said demand for industrial buildings is being driven by the e-commerce and life sciences sectors.

"The industrial market provides investors exposure to both growth engines in our economy," he said.

Moore said Ryan already has a well-established in-house property management division and a building engineering team that manages its own assets as well as those owned by others.

"When we're working with clients we can take a wholistic approach to buildings," he said. "We know to design them and build them, but also operate them through their life cycle."

Across the country Ryan manages about 19 million square feet of space. That includes a growing portfolio of medical buildings the company has developed.

In early January, however, the company sold a portfolio of 11 medical buildings in six states.

Andrew Twito, vice president of capital markets at Ryan, said the deal — the largest for the company's healthcare sector — enabled it to redeploy capital to new projects for healthcare clients while still retaining management of those assets.

"Almost every type of investor has been evaluating the healthcare sector," he said. "It's an attractive sector because it's defensive during a recession. This sale demonstrates the investment interest and demand in healthcare."