Cottonwood Management Makes Big Investments in Industrial Sector

Early in the pandemic, when construction lending by commercial banks slowed, Cottonwood Management seized the moment.

The downtown-based private equity real estate investment firm used its connections to negotiate rights to either buy or work on industrial assets.

“We’ve been interested (in industrial) for a while, and Covid provided us the opportunity to access the asset class,” said Tinchuck Ng, Cottonwood’s managing director and head of investments.

The firm, which had previously focused on other asset types, has spent the past year expanding into the industrial sector and is poised to grow even further in the space.
In February, Cottonwood made a big investment in industrial, spending $80 million on two transactions.

One was a $53 million bridge loan for the redevelopment of a nearly 4.8-acre industrial property in Silicon Valley. And the other was a $27 million construction loan to fund a 330,000-square-foot ground-up distribution center in King of Prussia, Pa.

“It’s no secret that the industrial side, particularly logistics, is an area where the trends are pointing in the right direction,” Ng said.

She has a long history in the industrial space where she was a founder of Athena International Capital, served as the head of real estate business development for the Asia Pacific region at Aviva Investors and was a director of real estate at BlackRock Real Estate, among other roles.

“Covid, it actually offered us a window to access the asset class and allowed us to take advantage of our capital capabilities to get into providing construction debt,” Ng said.

In evaluating assets, she explained, Cottonwood looks at whether it can “come in and fix it” if something goes wrong with the other groups working on the property, and in industrial properties, the answer is generally yes.

Getting started

Cottonwood was founded in 2012. In addition to its downtown headquarters, the firm also has locations in Boston and New York and has investments on both coasts and in the Sun Belt.

The company has investment, development and operating capabilities and works on everything from ground-up development to value-add properties and distressed real estate assets.

“In terms of investment area, I call it more a dumbbell strategy. There’s the primary gateway cities along both coasts and on a selective basis, other priority growth markets we are looking into, but it tends to be very relationship-driven,” Ng said.

She added that the firm differs from other investment managers because it “does everything” while many others focus solely on debt.

“We tend to focus on larger scale, more complex projects whether it’s debt or equity,” she said, adding that the company takes a long-term view.

But now it’s in growth mode. “Covid … accelerated certain trends,” she said.
Alexander Shing, Cottonwood chief executive, added that “2020 proved that our portfolio was resilient.”

“Going forward, we feel comfortable with our investment strategy and are looking forward to expanding our company base,” he added, saying the company was now “going through a growth mode.”

Expanding through partnerships

Besides its plans for growth in the industrial sector, Cottonwood is also growing through partnerships with other firms.

Last year, it announced a partnership with BCEG International Investment-US Inc. on an investment platform with up to $200 million being allocated for U.S. real estate opportunities.

The two companies will offer financing and acquisition support, predevelopment and entitlement help and construction management.

Cottonwood has also announced a partnership with Boston-based Shawmut Design and Construction to expand its education sector real estate footprint. That includes student housing, school buildings, research labs, dining spaces, campus centers, performing arts centers and athletic facilities.

“Shawmut has a very strong track record in that space as a contractor, and we see our skills being very complementary,” Ng added.

Jaclyn Fitts, an executive vice president at CBRE who co-leads the group’s national student housing team, said investor demand for student housing during the Covid-19 pandemic briefly slowed but picked back up, especially because occupancies went down by only about 3% nationally during the Covid-19 pandemic.

“Investor interest waned going into the pandemic, especially as universities closed, and there was some uncertainty … but as schools began to open, and even schools that had gone virtual were still seeing strong demand in their housing, investor interest came back,” she said.

Education sector opportunities

Fitts added that with schools going back to in-person learning, demand is rising, and enrollment next year is expected to be high as some students decided to take a gap year this year.

“Investors are feeling very strongly about the sector overall,” she said.

Shing has been involved in the education sector for the past few years.

“One area that has always been overlooked are education-related assets,” Shing said. “There are a lot of education assets that have that type of intuitional quality and (are a) diamond in a rough that no one has discovered yet.”

Shing added that he is starting to see more capital interested in the sector now.
“We are bullish on education-related assets. We don’t think it’s been discovered, and there’s some level of trepidation in investing in that asset class. We see it like hotels 20 years ago or logistics 10 years ago.”