$100 billion property giant Prologis sealed a huge EV charging station deal. It hints at a new opportunity for real estate investors.
- Prologis is set to build out a huge EV charging station in Southern California.
- Deal shows how commercial vehicles will need large, dedicated charging facilities.
- Government rules and incentives are spurring EV charging station development.
The world’s largest warehouse owner is capitalizing on the most significant transformation of America’s highways since the invention of the automobile.
Prologis, the $100 billion owner of industrial and logistical properties, has agreed to build a large electric-vehicle charging station in Southern California, according to a company executive.
Henrik Holland, a former Shell executive who joined Prologis in 2021 to lead the company’s electric-vehicle development efforts, said he couldn’t yet reveal any details about the deal. However, a person familiar with the transaction said it was with the Danish shipping giant Maersk on a large land site near the ports of Los Angeles and Long Beach — the US’s leading ocean-cargo hubs by volume and a trucking hub.
A Maersk representative declined to comment.
The multi-acre property on Denker Avenue in the Los Angeles County city of Torrance is about 10 miles from the ports and will be able to accommodate 120 trucks fueling at the same time, making it one of the country’s largest such charging depots dedicated to commercial traffic.
The project is one of the first of tens of thousands of such charging stations that will be required across the country to support the growing adoption of commercial electric vehicles. While consumer cars are mostly charged in garages or at small-scale chargers in parking lots or roadside stops, commercial vehicles are expected to necessitate a vast network of large, dedicated facilities with massive electrical capacities capable of powering dozens or even hundreds of vehicles at once.
The prospect of such overwhelming demand has piqued the interest of real-estate investors, existing landlords, and a growing number of EV-charging companies eager to collaborate with both. The rush of interest is based on the potential for billions of dollars to be allocated to the emerging asset class of charging facilities in order to earn lucrative returns.
At an industry conference in May, John O’Leary, CEO of Daimler Truck North America, which produces electric trucks under the Mercedes and Freightliner brands, stated that $52 billion in charging infrastructure investment is required to support the growth of electric commercial vehicles by 2032. According to a company representative who confirmed O’Leary’s comments, the estimate included the cost of electrical-transmission upgrades and increased energy generation required for widespread charging but did not include costs associated with purchasing or leasing the real estate where power and charging equipment will be installed.
“We are at the start of what is a significant shift in the logistics transportation industry,” Holland went on to say.
Holland believes that “20 to 30%” of Prologis’ 1.2 billion square feet of logistics and warehouse properties around the world “will have some form of EV charging capacity” in the near future. Holland described the new charging agreement as “a very exciting project.”
The new charging station will be the largest Prologis has ever built. Late last year, it installed 38 chargers for Maersk electric trucks at two locations in the Los Angeles area.
“We need to meet our customers where they are,” said Holland.
Government mandates have boosted investor confidence.
Government regulations are hastening the transition.
California passed regulations earlier this year prohibiting the sale of diesel or gas-powered trucks in the state by 2036 and requiring all commercial vehicles registered in the state to have zero emissions by 2042. The deadline is approaching faster at its major ports. Truck operators will no longer be able to register new emissions-producing vehicles that service those facilities beginning in 2024. All commercial traffic entering port properties to transport shipping cargo or containers must be emission-free by 2035.
In California alone, the mandates are expected to electrify over a million trucks and vans. According to California Air Resources Board data, there will be 1.8 million conventional medium and heavy duty commercial vehicles operating in the state in 2021. According to the board, there will be 510,000 zero-emission vehicles in the state by 2035, and 1.69 million by 2050.
According to the US Department of Energy, only 3,360 electric trucks and buses were registered across the country in June, with only 720 medium-duty EV chargers and 135 heavy EV chargers. Because California’s regulations generally guide automobile manufacturing and other states’ policies, the rules are likely to usher in a national transition to electric or hydrogen-powered trucks and vans.
Investor confidence has grown as deadlines approach and the number of chargers and EVs expected to skyrocket.
Axis IOS, which specializes in industrial outdoor storage lots, has purchased a roughly half-acre site in Vernon, an industrial neighborhood near downtown Los Angeles, for $9.4 million in 2021, with plans to install 42 commercial vehicle charging stations.
Crawford Arnold established Axis IOS in 2022 to capitalize on the rising demand for industrial outdoor storage (IOS) properties. The sites can be used for a variety of commercial purposes, including vehicle or construction equipment parking and the storage of heavy materials such as shipping containers, gravel, and lumber. Charging stations are now being added to the list by investors such as Axis IOS.
“We call it e-IOS, which stands for electrified IOS,” Arnold explained. “We are moving forward with our strategy of purchasing and electrifying sites.” Finally, we are confident that there will be a demand.”
The Vernon property’s central location to Los Angeles’ sprawling population, according to Arnold, will be appealing to a growing number of shipping companies that are adopting light-duty electric trucks for last-mile deliveries and need locations to park and charge them.
Amazon announced in October that it was operating approximately 10,000 electric delivery vans manufactured by Rivian for the company. The e-commerce behemoth stated that it plans to drive 100,000 of these vehicles by 2030. FedEx and UPS, among others, have begun to deploy electric delivery trucks and have pledged to expand their fleets.
According to Arnold, electric charging stations could be more profitable than traditional industrial outdoor storage properties. The charging industry allows investors to collect rent from users who lease parcels of land to park and charge, earn a markup on electricity, and potentially tap into other revenue streams. These include charging-equipment upgrades and analytics services that assist users in managing their power consumption and developing routes and routines that minimize vehicle downtime while charging.
Arnold anticipates annual rates of return on invested equity in the “mid- to upper 20s,” a healthy premium over typical industrial outdoor storage sites, which he estimates yield in the low teens.
He stated that the company had a contract to purchase two more parcels of land in Southern California and another in Newark, New Jersey, for charging stations.
According to Zeina El-Azzi, CEO of Gage Zero, the company is also working with property owners to convert industrial outdoor storage sites to charging locations. Three charging stations are being planned for Southern California, two in Texas, one in New York City, one in New Jersey, and one in Colorado. El-Azzi stated that her firm had attempted to purchase or lease sites for charging businesses, as well as to partner with landlords and jointly oversee such projects.
She stated that two of the deals she was working on were collaborations with IOS owners.
“IOS is the most active developer right now in the fleet-electrification space,” said Jim Hurless, a CBRE executive who oversees the firm’s real-estate EV-charging business, which includes property brokerage and advisory work. Hurless stated that he is working with four industrial landowners to install charging stations on their properties for electric-fleet customers. His team has handled nine property acquisitions in the last two months involving real-estate developers who are purchasing sites with the intention of installing fleet-charging infrastructure.
Hurless described the math as “compelling.” Land sites with charging infrastructure are more expensive to lease. In Vernon, for example, charging sites have been marketed at $1.75 per square foot, compared to $1.10 per square foot for conventional industrial land, he said.
Tesla’s upcoming heavy truck may spark a charging boom
While many in the EV-charging industry are looking at shorter-haul commercial routes due to the limited range of electric trucks and vans per charge, others are looking at properties that could cater to longer-distance routes.
Chateau Energy Solutions, an infrastructure-development firm, has agreed to buy a 5-acre site “in the heart” of California’s Inland Empire east of Los Angeles, according to Michael Bresnahan, an associate at the company working on the project.
According to Bresnahan, the site has access to about 15 megawatts of grid power, which is enough “charging capacity to support several hundred trucks.” Chateau, which is partnering with private equity on the deal, could lease the property to multiple users or one large fleet operator, according to Bresnahan.
He estimated the acquisition to cost around $20 million, but he declined to provide an exact figure. Chateau hopes to secure a user before closing on the purchase in order to reduce its financial risk.
Next year, Tesla plans to ramp up production of its Semi, a long-awaited heavy-duty electric tractor truck with enough battery capacity to travel hundreds of miles, potentially leading to the electricization of more long-distance trucking operations.
“It could be a potential use group for our site given many of the long-haul routes originate from the Inland Empire,” Bresnahan said in a statement. According to him, the site could also accommodate medium or shorter routes, such as shipping traffic from ports.
Bresnahan said the site would have 180-kilowatt and 360-kilowatt chargers, which can quickly dump power into electric vehicles, boosting their charge in an hour or so — compared to the roughly 20 minutes it takes to fuel up a large diesel tractor truck. Longer routes, in general, necessitate fast charging in order for expensive long-haul vehicles to complete deliveries quickly enough to be profitable.
The chicken-and-egg problem in the EV charging industry
The availability of power is one of the most significant barriers to the development of charging stations.
Greg Pearson, a managing director at the investment firm Fortress who oversees the company’s portfolio of nearly 100 industrial outdoor storage sites, said the company was considering charging stations but that it could take more than a year to arrange enough power for commercial charging.
“We don’t want to embark on an 18-month adventure only to have a tenant tell us they’re going to go somewhere else at the end of it,” he said.
Pearson and others who own or manage industrial land spoke of a conundrum in the nascent EV-station business: tenants are hesitant to commit to sites with insufficient electrical capacity, but utilities are often hesitant to provide these upgrades without a user in place to reliably consume enough electricity to offset the costs of those upgrades.
“Utilities won’t supply the power unless you can prove demand,” said Frank Schulz, managing principal at The Klabin Company, a Los Angeles and Inland Empire industrial broker. “But to get the demand, you need the power.”
Pacific Drayage Services president Jim Gillis said he considered leasing a location for his burgeoning electric truck fleet less than 10 miles from the ports, “but felt that EV deployment would take awhile at the property due to its lack of heavy power.”
Instead, Gillis said the company was in the process of leasing a 7-acre site in Fontana, near San Bernardino, to help it handle hauling from the ports. Despite the fact that it is approximately 65 miles away, he chose the property due to its abundant power capacity. He’ll be able to install fast chargers capable of topping off his vehicles with about 10 to 15% more power between trips at the new property, a fueling cycle that will take about 45 minutes between trips, he said.
The Los Angeles Department of Water and Power, according to Emil Abdelshehid, a power-engineering manager, received so many inquiries about power availability, including charging sites, that it released an electrical-capacity map last March.
In the previous year, the utility was asked to conduct 108 feasibility studies for electrical-charging developments, up from 155 the previous year, reports that provide a detailed analysis of how and at what cost a property’s power can be increased. According to the utility, the number of such studies conducted in the last two years represents a significant increase over previous years.
Unproven technology and hesitant landlords
Other complications have arisen as a result of the unproven electric trucking technology.
PDS, according to Gillis, is “on the fourth or fifth recall” for the six Volvo VNR electric trucks it has purchased so far. Each truck costs approximately $450,000.
“We’re frustrated with that,” Gillis said.
PDS has about 320 diesel rigs, according to Gillis, but due to the rules, it will purchase “20 to 30 electric trucks” per year to gradually electrify its fleet. It has also ordered 50 hydrogen-powered vehicles from truck manufacturer Nikola.
“If you talk to any trucking executive, we all want clean air,” Gillis went on to say.
Some property owners, however, remain undecided.
Gravity Inc., which manufactures charging equipment as well as develops and manages charging sites, is negotiating the installation of 25 chargers on a land site in Brooklyn for commercial trucks or vans. According to Moshe Cohen, Gravity’s founder and CEO, the landlord required coaxing.
“There’s just hesitation because this is new and this is prime property,” Cohen went on to say.
Cohen stated that his company would sign a lease that would provide the property owner with guaranteed income as well as a share of the profits generated by the charging station.
“It’s a process,” said Cohen. “A slow process of convincing.”
