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This IPO is Betting Big on Amazon Reshaping Industrial Real Estate

The soon-to-be-operator of a lone Amazon warehouse in California’s Bay Area is prepping to go public before officially owning any property. But Rox Financial LP, the limited partnership that is set to purchase the 145,500-square-foot facility and lease it to the e-commerce giant, has serious goals of expanding well beyond its first warehouse.

Rox Financial LP filed a Form S-11 registration statement with the U.S. Securities and Exchange Commission (SEC) for the proposed initial public offering (IPO) of 8.25 million Series AMZL shares priced at $10 per share. The net proceeds from the proposed offering, in which the company wants to raise at least $83.5 million, will be used to fund a portion of the net purchase price of the warehouse, it said in the filing.

Rox Financial says it intends to build its “Series AMZL” branch into a curated portfolio of logistics properties in one or more locations that have Amazon as a common tenant. Amazon already leases the property Rox is set to acquire, which is approximately 40 miles from both San Francisco and Sacramento, Calif., and uses it as a last-mile delivery hub. Amazon currently occupies more than 255 last-mile delivery stations and has plans to occupy at least 43 more facilities in 2021.

In the filing, Rox Financial said it intends to acquire properties that are “newly built in prime locations and have a long-term net lease with regular contractual rental escalators.”

The Oakley, Calif., facility includes automated conveyor systems and electrical infrastructure for future vehicle charging stations, alluding to Amazon’s increased emphasis on electric vehicles (EVs). The 25-acre site, built last year, houses a fleet of Amazon delivery vans. The facility under its current owner is leased to Amazon until September 2032.

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NorthPoint Development, the developer and current owner of the building, agreed that Series AMZL has the right to purchase two more properties in the facility’s 2.2 million-square-foot Contra Costa Logistics Center for one year following the IPO’s completion. Amazon would lease both of these, which are still under construction.

One is an approximately 450,000-square-foot facility to be used as an outbound cross-dock fulfillment center expected to be occupied in September, and the other is a 480,000-square-foot facility to be used as an inbound cross dock fulfillment center expected to be occupied in July 2022.

According to NorthPoint, the property benefits from significantly lower drayage costs per container from the Port of Oakland than other California cities. At $402.50 per container, the drayage cost between the Port of Oakland and the property is lower than competitive locations.

Additionally, Rox Financial believes the Oakland site had numerous other advantages including: a large, highly concentrated population with an above average five-year projected growth; a substantial potential warehouse worker labor pool with a positive supply/demand balance; and a receptive community and local political environment.

Rox Financial’s IPO decision and prospective real estate purchase come at a time when industrial real estate such as warehouses and distribution centers is sorely needed across the U.S. as e-commerce demand continues to increase.

In the first quarter of 2021, industrial space had a vacancy rate of approximately 4.4 percent and an availability rate—which calculates property currently on the market for sublease—of approximately 7 percent, approximately 0.3 percentage points lower than the prior quarter and a record low, according to CBRE.

The commercial real estate firm estimates that approximately $1 billion in incremental e-commerce sales generates 1.25 million square feet of warehouse space demand.

The shortage of warehouses and distribution centers has contributed to the supply chain bottlenecks, and overall created more expenses. Low supply continued to drive industrial rents higher. In the U.S., industrial triple net asking rents averaged $8.44 per square foot in the first quarter of 2021, up 7.1 percent year-over-year and an all-time high, CBRE said.

Rox Financial LP has applied to list the shares on the New York Stock Exchange (NYSE) under the symbol “AMZL,” which also happens to be the abbreviation for Amazon’s Logistics division. The company intends for Series AMZL to elect to be taxed as a real estate investment trust (REIT) for U.S. federal income tax purposes commencing with its taxable year ending Dec. 31, 2021.

From an investor standpoint, Rox believes its Series AMZL will be “more accessible and liquid” than private equity investments and more “transparent and targeted” than traditional listed REITs.

“Logistics facilities leased by Amazon are a material part of the U.S. industrial commercial real estate market,” the filing’s investment case said. “We believe a curated portfolio of these properties should deliver an attractive risk-adjusted return that would appeal to investors seeking modest but consistent increases in distributions and potential for asset value appreciation.”

Although the Series AMZL portfolio only focuses on properties with the intent to lease to Amazon, Rox Financial also plans to curate single-location portfolios, where it can lease multiple properties to several tenants in a common location, such as an industrial park or a life sciences campus. It also plans to scoop up individual properties “with significant scale and cash flow durability,” such as a corporate headquarters or a stadium.

UBS Investment Bank is acting as lead bookrunning manager and as representative of the underwriters for the proposed offering.