David O'Donnell

Special Purpose Buildings Offer More Flexibility

Mon, 09/01/2014 - 16:21

O’Donnell has been a leading developer of logistics and manufacturing buildings in Mexico. Since 1996, it has developed, acquired, and now manages over 1.16 million square meters of industrial properties strategically located in 15 markets across Mexico. O’Donnell’s investment strategy is to add incremental value by building speculative industrial buildings in the country’s primary distribution and manufacturing centers. The automotive sector represents approximately 30% of the company’s portfolio throughout the country, a percentage which has been increasing as more automotive companies invest in Mexico. The company’s CEO, David O’Donnell, says this expansion is due primarily to the flow of Japanese, Korean, and German OEMs coming to Mexico, bringing Tier 2 and 3 suppliers with them. This led the company to now manage over 100 hectares of land throughout the country that is earmarked for future developments, providing O’Donnell with a rolling inventory to adapt to clients’ needs in automotive and beyond. O’Donnell builds flexible speculative properties to accommodate anticipated demand, while it builds custom buildings to suit company’s particular needs. To ensure longterm value, special purpose buildings are always designed to incorporate long-term flexibility to ensure minimal cost and expense when retrofitting a property once it is vacated.

O’Donnell’s service portfolio for the automotive industry mainly consists of built-to-suit facilities. Such properties are specially designed for companies that have special requirements for their operations that existing buildings would struggle to fulfill. As such, more investment is needed in terms of time and resources, but the client ends up with a customized plant that can be used long-term with little need for modification. O’Donnell was recently awarded the right to build and manage the Audi supplier park in San José Chiapa, Puebla, a 232,000 square meter complex to serve just-intime, just-in-sequence the new Audi Q-5 assembly plant. Other successful build-to-suits in the auto sector include Magna in Toluca, and Autoliv and Rockwell International in Queretaro, to name but a few. O’Donnell explains that the company’s success is rooted in its relentless focus on realizing its mission, which is to increase its client’s competitiveness by providing impeccable customer service, strategic locations, intelligent engineering and quality construction, proven and reliable leadership, and offering space at a competitive price. In terms of spec buildings, O’Donnell lists Grupo Modelo, Bombardier, Unilever, Hellmann, and UPS among its clients.

The company’s foray into Mexican real estate began in 1996 when it first developed a 34 hectare industrial zone in Queretaro. But although GE Capital and JP Morgan provided its first loans, O’Donnell’s most trusted financial partner has been Prudential Real Estate Investors (PREI), ever since a co-investment agreement was signed between the two in 2004. As PREI’s first such venture in Latin America, this collaboration proved fruitful as from 2004 to 2008, the leasable area of O’Donnell’s industrial portfolio grew at 50% annually. This allowed it to run the fifth largest industrial portfolio in Mexico. Over the next two years, O’Donnell took on 39 more buildings. In 2013, it allowed its assets to be included in PREI’s industrial real estate investment trust (REIT) in Mexico, known as Terrafina.

In terms of location trends, O’Donnell says that the Bajio region will continue to be a preferred location for the automotive sector to establish new plants and to expand existing ones, given the number of existing and new automotive assembly plants that are, and are soon to be established, in the area. Demand has been fueled over the last five years by Mazda’s and Toyota’s new assembly plants that are now producing cars, and is expected to continue to support growth at the new Daimler plant in Aguascalientes and BMW’s planned plant in San Luis Potosi. As investments continue to flow into Mexico, other automotive firms will plan their entry, which will create the new wave of demand, he predicts. “When these define where they will establish themselves, then another wave of suppliers will come along.” The company’s CEO also predicts heavy investments going to Monterrey due to Kia’s proposed new plant there, and also to Puebla to serve the new Audi plant.

It is this ability to quickly respond to major trends of important growing industries which anchored O’Donnell’s growth. The company built its first industrial park in Queretaro in 1996, and built and leased facilities for such notable automotive companies as Autoliv, Rockwell International, and Johnson Controls. Recently, it has expanded its industrial park to accommodate Mitsubishi Automotive, demonstrating its ability to respond quickly to satisfy demand. As such, it´s goal has been to invest in major markets where there is high demand, avoiding acquiring land that will become obsolete and speculative. “We do not chase markets. We focus on major markets and if we spot an opportunity, we capitalize on it,” tells O’Donnell.