For this Field Note, we wanted to share some perspective on a decision we made several years ago that, at the time, was not easy — the sale of our Midland industrial portfolio, despite the fact that the properties were producing strong cash flow.
That portfolio was built over a number of years as we acquired and developed industrial properties in the Permian Basin during a period of significant oilfield activity. The assets were well leased, rents were strong, and the properties were generating consistent income for the partnerships. In many ways, it was exactly the type of portfolio you hope to own.
At the same time, real estate cycles do not stand still. As we moved into the later part of that cycle, pricing for industrial assets — particularly in energy-driven markets — had increased significantly, and buyer demand was strong. While the cash flow was attractive, we believed the market was placing a premium on those assets that might not always be there.
Selling a performing property is often harder than selling one that is struggling. There is a natural tendency to hold onto assets that are producing income, especially when there is no immediate need to exit. In this case, however, we felt the better long-term decision was to take advantage of the strong market, return capital to investors, and reposition equity into new projects where we believed the next cycle of growth would occur.
The decision proved to be timely. Not long after the sale, oil prices declined, activity in the Permian slowed, and industrial demand in that region softened. While the portfolio would likely have recovered over time, the ability to exit at strong pricing allowed us to preserve gains and redeploy capital into projects in the Dallas-Fort Worth and Austin growth corridors, where we continue to focus today.
Another benefit of the sale was flexibility. By harvesting equity from a mature portfolio, we were able to enter the next phase of the cycle with dry powder, rather than being fully committed to assets that had already experienced most of their appreciation.
As we have mentioned in prior notes, our goal is not to buy or sell based on short-term predictions, but to stay aware of where we are in the cycle and make decisions that position the partnerships well for the next phase of growth. Sometimes that means holding through uncertainty, and sometimes it means selling even when things are going well.
Looking back, the Midland sale was a reminder that discipline on the sell side can be just as important as discipline on the buy side.
