Dive Brief:

• Heartland Express has executed a sale-leaseback deal for its Rancho Cucamonga, California, trucking terminal to take advantage of a red-hot Inland Empire real estate market, CFO Chris Strain said in an interview.
• Heartland completed the sale of the 8566 Pecan Ave. property to Realterm, a transportation industry-focused property manager, on May 23. It expects a $73 million pre-tax gain on sale of the property, according to an SEC filing. "Initially we didn't want to sell, but the price just kept getting better and better," Strain said.
• The 26,800-square-foot fleet maintenance facility features 22 loading bays and is one of the largest in the region, according to a Realterm news release. It is located six miles from Ontario International Airport and less than nine miles from a Union Pacific Intermodal terminal. Heartland's lease agreement at the location includes a two-year base term and a five-year renewal option.

Dive Insight:

Leasing a terminal has become a rarity for Heartland, with its annual report showing the carrier owned all of the 25 terminal facilities it operated at the end of 2021.

"Our approach to our terminals is to own the real estate," Strain said, adding that selling the Rancho Cucamonga terminal "was a unique situation."

The deal allowed Heartland to sell high in a tight real estate market and Realterm to land a quality trucking facility difficult to find elsewhere, said Jace Gan, a real estate broker at Colliers who helped facilitate the transaction. Sale-leaseback deals allow the seller to put money toward other aspects of the business, such as a facility relocation or an entirely new build, Gan added.

The price was apparently worth it for Realterm as companies push to expand their presence in the critical, port-adjacent market. The Inland Empire's Q1 2022 vacancy rate dropped to 0.3% while rents climbed to an all-time high, according to CBRE.

“The Inland Empire is known as one of the most highly sought-after high flow through industrial markets in the country,” said Stephen Panos, managing director and fund manager of Realterm, in a statement. “As a best-in-class fleet maintenance facility, 8566 Pecan Avenue is an excellent addition to our portfolio.”

Compounding the tight supply is pushback from elected officials on the glut of warehouses in the area. A bill proposed in California's state legislature, for example, would restrict where 100,000-plus square foot logistics spaces could be built in the Inland Empire.

"All the municipalities are continuing to push uses like this out [of the area], and if you're able to utilize a facility like this or have one, they're really special," Gan said.

The Rancho Cucamonga deal was a major transaction for Heartland in comparison to the company's real estate activity last year. The company made $37.4 million in 2021 on property and equipment sales, including a $4.2 million gain off the sale of a terminal in an undisclosed location.

Heartland doesn’t expect any more terminal sales, but Strain wouldn’t close the door entirely on the possibility. Market conditions and who the potential buyer is would play a role in such a decision, Strain said.