Demand for industrial real estate continues to increase, due to a strong market, favorable interest rates, and the expansion of e-commerce. One segment of the industrial real estate market where demand continues to outpace supply is cold storage facilities and public refrigerated warehouses. Given the projected U.S. population growth, consumer demand for fresh and organic food products, and insatiable consumer expectations for speedy delivery times, the overall demand for this asset classes continues to increase.

The consumer is becoming more conscious about how and what they eat. According to Food Marketing Institute’s “Digitally Engaged Food Shopper” study, research indicated that in as few as 5-7 years, 70% of consumers will be grocery shopping online. Cold storage facilities are essential when to the supply chain for temperature-sensitive food products and e-commerce grocery and food delivery.

Potential investors and operations should be cautious of the complex operational, leasing, insurance, and liability aspects of cold storage properties.  Potential investors and operators of cold storage properties should consultant with their legal counsel to address complex and sensitive temperature control obligations, perishable inventory insurance and liability issues as part of the leasing strategy and documentation. Additionally, in contrast to the “triple net leases” (where the tenant is solely responsible for all costs relating to the property being leased) framework that prevails in many commercial properties, cold storage space is more likely to be leased out via “modified gross lease” or third party logistics (3PL) and public refrigerated basis – – or even combinations or hybrids, depending on the asset and market.

At Haber Law, our real estate team has been very active in the cold storage market. In May, we represented the Mandich Group (via an affiliate) in the acquisition, leasing, and financing by City National Bank of Florida of a 139,400 sq. ft. cold storage facility in Fort Wayne, Indiana. The property, of which 90,000 sq. ft. is freezer and cooler storage space, was purchased for 6 million. Additionally, Podein represented Mandich Group (via an affiliate) in its acquisition and financing of a 52,500 sq. ft. cold storage facility in Fresno, California. This was the fifth transaction our real estate team has closed in the last two years with the Mandich Group, representing more than 300,000 sq. ft. of acquisitions.

About the Author: David Podein is a partner with Haber Law and has been with the firm since 2009. He concentrates his practice in the areas of real estate and construction law, condominium/community association representation, secured financing, and related business matters.

When thinking of purchasing, financing, or leasing in the cold storage real estate market, make sure to seek advice on reducing risk when negotiating contracts. For more information or to schedule a consultation contact our real estate and business transactional attorneys.