With demand for light industrial and distribution space continuing to experience strong growth, some Maryland CRE companies are expanding to other states to serve client needs and seize market opportunities.

Even in a good economy, however, expanding into a new market is a major and potentially risky business operation. How can a company properly assess the opportunities, challenges and requirements of new markets to position themselves for successful, out-of-state ventures?

A growing number of Maryland CRE companies are successfully expanding to other states. In February, MacKenzie Investment Group announced its expansion into the Richmond, VA market with the delivery of a 202,000-square-foot warehouse/ industrial building. Photo courtesy of MacKenzie Investment Group.

At the end of 2021, Merritt Properties announced its first foray into the Jacksonville, Florida market. It had purchased a 25-acre tract of land to build Imeson Landing Business Park and laid plans to develop 266,000 square feet of light industrial space. The company had also acquired a portfolio of three existing light industrial buildings, totaling 80,863 square feet, in nearby Magnolia Park.

Although the Jacksonville opportunities gelled in 2021, Merritt’s focus on the market arose from extensive research it conducted four years earlier. Eager to identify prime expansion opportunities, the company had investigated about 20 markets outside of Maryland.

“We met with economic development officials and commercial real estate professionals in each city to get a better understanding of the market, growth opportunities, barriers to entry, the runway for long-term growth and whether it was a pro-business, pro-growth environment,” said Bobby Lanigan, Acquisitions at Merritt.

Over the course of numerous trips, Merritt assessed everything from existing building stock and development timelines to zoning requirements and local site conditions. It also contracted economist Anirban Basu to conduct market analyses. After a year of study, Merritt executives decided their best opportunity was Research Triangle Park in Raleigh-Durham. That assessment proved out.

“Three years later, we have 16 employees in Raleigh-Durham and successfully developed and leased our premier project, Merritt TW Crossing. Additionally, we have approximately 1.5 million square feet of product under construction or planned for development. It has been a great success thus far,” Lanigan said.

In mid-March, Merritt announced its latest and largest expansion in North Carolina – the acquisition of 142 acres in Cary and plans to develop a 13-building, 738,750-square-foot flex/light industrial business park.

In those three years, Merritt also honed its process for succeeding in a new market. That includes moving experienced Merritt employees to the new market to establish company operations and culture, expanding relationships within the community and buying property to accommodate future development.

So when an opportunity surfaced last year to expand to Jacksonville, Merritt was ready. Its 20-market study had already shown that Jacksonville presented attractive development opportunities and Merritt had continued to build relationships in and knowledge of the area in recent years.

“We felt Jacksonville was a place that folks hadn’t really discovered. There hasn’t been much development for that small, 6,000-square-foot tenant and much like North Carolina, we look forward to years of growth,” Lanigan said.

Before beginning its expansion to other states, Merritt Properties conducted an extensive study of 20 markets. It subsequently launched successful expansions in Raleigh-Durham and Jacksonville, Florida. Image courtesy of Merritt Properties.

In Greater Richmond, Virginia, MacKenzie Investment Group has found its latest expansion opportunity. In February, MacKenzie announced the delivery of a 202,000-square-foot warehouse/industrial building in the North Richmond Industrial Park. The company is currently evaluating plans to proceed with another 315,000-square-foot building in the same park, as well as assessing development plans for another parcel of land south of the city and considering the purchase of a third parcel of land.

“When first evaluating Richmond, we were really enthused by the tenant demand for space, and decided to build speculatively to capture that demand,” said Brendan Gill, President of MacKenzie Management Company.

MacKenzie was rewarded in its risk-taking and fully leased that first building while it was under construction to three tenants – Home Depot, Sentara Healthcare and MS International (an importer of natural stone and countertops). The company now sees numerous other opportunities in the Richmond market.

“We often find that once you do one deal, other deals start to present themselves because you are active in the market. We got to know other CRE professionals in the Richmond market and, after proving we could perform and act quickly, more deals have followed,” Gill said.

For MacKenzie, the Richmond market is attractive for several reasons. It is within a day’s drive of the company’s Maryland offices, it is near major transportation resources (highways, rail lines, an airport and the Port of Virginia) and it meshes with the current desire among many companies to establish smaller distribution hubs near population centers.

Similar dynamics have supported MacKenzie’s expanding brokerage operations in Delaware.

“There’s a significant shift in population happening there,” Gill said. “All the beach towns in Delaware that used to be seasonal are now seeing a lot of retirees and other people move there and live there year-round. With that, you need all the commerce that follows people – not only on the retail side but also healthcare facilities and distribution hubs.”

MacKenzie, he said, is successfully replicating its operations and culture in those nearby markets, but is also wrestling with the question of when to open offices in other states.

“It’s a bit of a chicken and egg situation,” Gill said. “You need a critical mass to open an office and take on that overhead but it’s also hard to get the revenue streams to support that overhead without having a physical presence. On top of all of that, it’s paramount to preserve our reputation and culture that’s been built over the last 54 years. With that in mind, we are being very intentional in our evaluation of opening an office in Virginia or Delaware.”