While the tragic collapse of the Howard Street Bridge in Baltimore understandably dominated headlines, few analysts have considered its potential impact on the industrial real estate market. Could this unfortunate event actually present a hidden opportunity for First Industrial Realty Trust (NYSE: FR), a company with significant holdings in the Baltimore area?

At first glance, the bridge collapse appears to be a logistical nightmare for the Port of Baltimore. The bridge was a key artery for truck traffic, and its closure has caused significant disruptions to port operations. However, a closer examination of the situation reveals a more nuanced picture.

As noted by First Industrial executives during their recent Q1 2024 earnings call, the Port of Baltimore primarily handles automobile and bulk material shipments (Roll-on/Roll-off or RORO). Container traffic, the segment most directly impacted by the bridge closure, constitutes only a small fraction (5%) of the port's overall activity.

Furthermore, the Port Authority has acted swiftly to mitigate the impact of the bridge closure. Temporary channels have already been reopened, and full service is expected to resume by the end of May 2024. These efforts should ensure a relatively quick return to normalcy, minimizing any lasting impact on demand for industrial space in the Baltimore area.

However, the perception of disruption, even temporary, might create a window of opportunity for First Industrial. While the company hasn't observed any direct negative impact on demand due to the bridge collapse, it's possible that some tenants, particularly those focused on container traffic, might become hesitant about leasing space in the Baltimore market.

This hesitancy could lead to a softening of rental rates and potentially create attractive acquisition opportunities for First Industrial. The company has already demonstrated its ability to capitalize on such situations, as evidenced by their recent off-market acquisition of a sale-leaseback property in the Inland Empire and a development project in Orlando, both secured due to the previous owner's financing challenges.

It's worth noting that First Industrial recently secured two significant leases in Baltimore, totaling 993,000 square feet, at their Old Post Road asset. The successful lease-up of this property, even in the immediate aftermath of the bridge collapse, suggests that overall demand in the Baltimore market remains robust.

However, the Hagerstown submarket, where First Industrial has a 309,000 square foot vacancy, presents a more challenging scenario. This submarket, located along the I-81 corridor, has a softer industrial market with double-digit vacancy rates. It's possible that the bridge collapse could exacerbate the existing weakness in Hagerstown, making it difficult to lease up the vacant space at favorable terms.

Hypothesis:

The temporary disruption caused by the Baltimore bridge collapse, combined with the existing weakness in the Hagerstown submarket, could create an opportunity for First Industrial to acquire industrial properties in the Baltimore area at attractive prices.

Numerical Analysis:

Hagerstown vacancy: 309,000 square feet

Hagerstown submarket vacancy rate: Double-digit (assume 10% for calculation)

Potential acquisition target size: Assume First Industrial targets properties with vacancy similar to the submarket rate, implying a potential acquisition target size of 3,090,000 square feet (309,000 / 0.10)

Potential acquisition price: Assume a 5% discount to market value due to perceived risk associated with the bridge collapse, implying a potential acquisition price discount of $15.45 million (3,090,000 * $5 * 0.05)

Lease Signings related to 2024 Commencements

The following chart shows the percentage of lease signings by rental income, and the cash rental rate change for the year.

Conclusion:

While the Baltimore bridge collapse is a tragedy, it could create a unique opportunity for First Industrial Realty Trust. The company's strong balance sheet, proven ability to capitalize on market dislocations, and existing presence in the Baltimore area position them well to potentially acquire industrial assets at attractive valuations.

"Fun Fact: First Industrial Realty Trust was founded in 1994, the same year as the Northridge earthquake in Los Angeles, another event that caused significant disruptions to the industrial real estate market. The company's resilience and success in navigating such challenging periods underscore its strong track record in adapting to market dynamics."