S.E.C. Real Estate Observer

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Cold Storage—A Quick Primer

As some of you know, I have been studying the cold storage industry, and several people have asked me for information about this growing industry. It is a very specialized property type, and it’s not for the faint hearted. Construction costs easily exceed $170 per square foot, sometimes going above $210 per square foot. Two weeks ago, I saw a project where the raw land costs exceeded $1.5 million an acre. A high percentage of the properties are operated by 3PLs (third-party logistics providers) who frequently service multiple clients. The demand for new facilities has exceeded the supply by about 20% for the past seven years. Part of that is due to the fact that the demand for fresh (never frozen) product is increasing at the rate of 4 to 5% a year.

Modern freezer facilities may be a half-million square feet with 130-foot inside clear height. Some operate in two temperature ranges: approximately 10 to 20 degrees below zero and 40 below. The harsh internal environment means that material handling operators and their equipment need special provisions to operate in these conditions (e.g., computers with keyboard buttons that accommodate heavily insulated gloves and special battery warmers and tires that don’t turn rock hard, to mention a few). Floors are insulated underneath, with heating under the insulation to prevent self-induced frost heaving. The newest facilities utilize a low oxygen environment to prevent the need for dry fire extinguisher systems in these huge facilities; however, that means personnel must wear individual supplemental oxygen breathing equipment when they are inside in addition to their heavily insulated outer wear. Because the spaces must be washed down on a regulated schedule for food safety regulations or between every change of food type (i.e., beef for fish, fruit for poultry, etc.), the interior finish must be food-grade, and provisions need to be made to thoroughly drain the wash water. The building envelope must seal against vapor migration, both infiltration and exfiltration, to prevent frost damage both inside and out.

Refrigeration facilities (temperatures above freezing) may have up to five different temperature zones depending on what products are being stored. Fresh meats, fish, and sea foods must be kept below 38 degrees, while tropical fruits must be held at about 53 degrees, plus or minus 2 degrees. Temperature ranges between those two extremes are necessary for other fruits and vegetables, depending on their hardiness. The correct temperature is critical to maximizing the shelf life of refrigerated foods. For example, strawberries have an optimum shelf life of 24 days from the time they leave the field until they begin deteriorating. Grocers want at least a week’s worth of shelf life remaining when they receive the product. Several studies claim that 40% of landfill volume is related to spoiled food. The consumer ends up paying for that in one way or another. Imagine the impact on food costs and energy saving that cutting that number in half would have.

Some facilities have both freezer and refrigeration operations under one roof, and some also incorporate food processing operations that add additional specialized freezer and/or capabilities. Many older facilities cannot be economically upgraded, or, with shifting populations, new processes and transportation options are no longer where they need to be. This is just a quick overview of a very complex market that is going through some dramatic changes.

Enjoy your summer!