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JLL Income Property Trust Buys South San Diego Distribution Center in UPREIT Transaction

Jones Lang LaSalle Income Property Trust, a daily net asset value real estate investment trust, has purchased the South San Diego Distribution Center, a 665,000-square-foot industrial portfolio in San Diego

Jones Lang LaSalle Income Property Trust, a daily net asset value real estate investment trust, has purchased the South San Diego Distribution Center, a 665,000-square-foot industrial portfolio in San Diego, California. The purchase price was $158.5 million.

South San Diego Distribution Center is comprised of three properties that are 96 percent leased to eight tenants.

These buildings, located in the Otay Mesa industrial submarket, are 1.5 miles from the US-Mexico border within close proximity to the Otay Mesa Port of Entry, the most active truck border in California and the second most active US-Mexico crossing behind Laredo, Texas.

A large share of tenant activity in this submarket is associated with cross-border trade with Mexico, requiring immediate proximity to the port as trucks cross the border multiple times a day. Near-shoring of manufacturing post-pandemic and continued trade tensions with China have boosted tenant demand and resulted in substantial rent growth, the company said.

“Industrial properties continue to be a target overweight for our portfolio given sustained tenant demand and strong, long-term outlook for the sector that we believe will yield stable income for our stockholders,” said   Allan Swaringen, president and chief executive officer. “South San Diego Distribution Center aligns well with our strategy, given its location near irreplaceable transportation infrastructure and San Diego’s strong industrial rent growth.”

San Diego’s economy is driven by technology, healthcare, biotech, life science, Department of Defense and defense contractors, along with tourism and trade with Mexico.

JLL noted that the overall San Diego industrial market consists of nearly 200 million square feet and faces geographic barriers to new supply due to its borders with Camp Pendleton on the north, the Pacific Ocean on the west, mountains and desert to the east and Mexico’s border on the south.

“For these reasons, San Diego is a highly rated overweight industrial market, according to LaSalle Research & Strategy’s target market analysis,” the company said. “The market’s overall industrial vacancy is currently just above 3 percent, and while there is new supply coming online, absorption is expected to be strong, allowing for further rent growth in the near future.”

The property was purchased through the assumption of an in-place $72.5 million first mortgage at a fixed-rate of 3.18 percent, and interest only for another four years with a maturity in 2031. The REIT also issued $75 million in operating partnership units to the sellers, affiliates of Murphy Development Company, a developer of Class A corporate industrial and technology parks in the San Diego market. The balance of the purchase was funded with cash.

Swaringen added, “Our unique UPREIT structure along with our diversified portfolio and NAV-based daily valuation were attractive to the sellers who chose to contribute these properties in exchange for interests in our fund rather than selling for cash, helping achieve a more tax efficient outcome along with facilitating their longer-term estate planning objectives.”

JLL Income Property Trust’s aggregate industrial allocation is now more than $1.8 billion, or approximately 30 percent of its $6.3 portfolio, and includes 53 properties across 12 markets.

Jones Lang LaSalle Income Property Trust (NASDAQ: ZIPTAX; ZIPTMX; ZIPIAX; ZIPIMX) oversees a $6.3 billion portfolio of residential, industrial, office and grocery-anchored retail properties. Since the beginning of 2012, the REIT raised a total of approximately $3.7 million through its ongoing public and various private offerings, as well as its distribution reinvestment plan.

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