The Hot New Real-Estate Investment Is in Keeping Food Chilled

Cold storage is becoming one of the hottest real-estate investments during the pandemic.

Lineage Logistics LLC, the world’s largest landlord of temperature-controlled warehouses, concluded a fundraising round last month that brought in $1.6 billion. It is expected to pursue a public offering, according to commercial real-estate analytics firm Green Street.

Americold Realty Trust, the only publicly listed cold-storage real-estate investment trust, recorded a 6% increase in net operating income in the second quarter. Together, the two firms have 59% of the cold-storage market share in the U.S. and are growing quickly.

Fans of this niche sector say the pandemic showed it can readily adapt to new customers and environments.

Cold-storage warehouses, which are similar to industrial warehouses but are refrigerated to store goods that need to remain fresh or frozen, usually cater to food producers, food wholesalers and retailers such as grocers, restaurants and other bulk buyers. But during the early days of Covid-19, shoppers swarmed supermarkets, hoarding frozen foods and other staples. Grocers, farmers and meat producers suddenly had to repackage food in smaller portions so it could be stockpiled for grocery-store customers at a time when most restaurants closed down.

As restaurants began reopening, these facilities were able to shift back to the needs of its core business.

“The pandemic showed how cold storage is agnostic to the ultimate destination of the food,” said Harrison Klein, an analyst at Cohen & Steers Inc., a global investment firm.

Cohen & Steers is bullish on cold storage and made two recent investments, including $100 million in Lineage Logistics in its latest fundraising round. Cohen & Steers also is one of the biggest investors in Americold.

Cold storage doesn’t appeal to all real-estate investors. Because of the refrigeration systems, these properties cost about twice as much to build as an industrial building, according to real-estate consulting firm JLL. Cold storage has lower revenue growth than other rapidly growing sectors, such as industrial or data centers. Owners are exposed to risks in the food supply chain such as labor shortages, since they typically also handle the transporting and refrigerating of goods.

Employees at these properties also have been susceptible to the coronavirus. Workers sort, unpack, repack and freeze food which is then stored on pallets that can be stacked as high as 40 feet. Large facilities can employ more than 100 employees each, and Covid-19 has spread through a number of these warehouses.

Greg Lehmkuhl, chief executive of Lineage, said his firm had to temporarily shut down plants in New Orleans and Allentown, Pa., because of workers who tested positive for the virus. The company increased spending on sanitization and Covid-19 testing, and staggered work shifts to improve health safety, he said. Active Covid-19 cases fell to 27 in late September from more than 100 at the peak, Mr. Lehmkuhl added.

Advocates of cold storage say the business’s growth prospects look bright. Grocers such as Kroger Co. are investing more heavily in their supply chains and e-commerce capabilities to reduce transit and delivery times. That is fueling development of more cold-storage facilities, especially in densely populated areas where more people are demanding faster deliveries of fresh food.

JLL said the average U.S. cold-storage warehouse is more than 40 years old. Since tenants prefer newer buildings with more energy-efficient cooling systems and higher ceilings that can pack bigger volumes, expect more construction of these facilities in the years ahead, said Mehtab Randhawa, JLL’s director of industrial research, Americas.

“Most of the buildings are really old,” she said.

Americold, for its part, is building two cold-storage facilities in Connecticut and Pennsylvania for Ahold Delhaize USA which are due to be completed in 2022.