How Vaccine Demand Will Create Opportunities in CRE

The rollout of the long-awaited COVID-19 vaccine has been hailed as a beginning to the end of a crippling, lingering pandemic — and the commercial real estate (CRE) space plays a vital role in this major turning point. Through the first half of 2022, many believe the thousands of COVID-19 vaccination centers required will call for creative space solutions, and the vaccine supply chain will come with its own demands.

In the U.S., there has been a fragmented approach to vaccination distribution, as health departments of each state and county have, so far, been left to determine their own plans on limited budgets. Most are relying on local hospitals and pharmacies for vaccine distribution and scrambling to convert government and school buildings into provisional clinics.

While waiting for President Biden's promise of a $20 billion plan for widespread vaccination centers and rural mobile units to materialize, states and counties have been designing and establishing their own mass vaccination sites that are large enough to accommodate more people per day than a pharmacy or clinic. They are also trying to avoid the risks of infection by having people line up in an enclosed area. This is where CRE investors may find an opportunity to be a part of the solution.

One of the most common methods — and CRE opportunities — is the drive-thru vaccination site. Typically set up in a large parking lot or parking garage, many of these may have previously served as a drive-thru testing facility. The convenience and safety of such a drive-thru system, especially during harsh weather months in certain parts of the country, is helpful to both healthcare workers and local residents.

A drive-thru model also allows for a virtually contactless process. In addition, elderly residents with mobility issues or health problems can remain comfortable and safe in their own car while waiting their turn for the vaccination and the mandatory 15-minute observation period afterward.

Many counties are leasing out space in shopping centers to serve as convenient and accessible vaccination hubs. In Lafayette, Indiana, Tippecanoe County commissioners agreed to a nine-month lease with Sandor Development for a vacant space in Tippecanoe Mall after ending its lease of a former H.H. Gregg store due to the cost of the larger space.

Jay Stein, CEO of Sandor Development, explained that Tippecanoe County's vaccination facility was well-served by his company's CRE offerings. "We have an active shopping center in the market with an available space and a very large parking area adjacent to the space they have leased, which was necessary for traffic flow and distribution outside."

Vacant retail stores across the country, such as some previously occupied by struggling Sears, have also become popular sites for mass vaccination centers, including the former retailer's locations in Pasco County, Florida, and Rockaway, New Jersey.

Though not all owners are taking the opportunity to make money on their space for this purpose, instead opting for the altruistic approach. In Iowa's Cerro Gordo County, for example, the county's health department was not charged for the lease of the 90,000-square-foot former Sears storefront by the building owner and will only have to pay for utilities. Although Stein said the rent from vaccination center leases will likely be “well below market," the community service aspect is key. "It's our pleasure to be part of the solution in our own small way."

It also served as a welcome boost to their nearby restaurant and retail tenants, he said.

The opportunities to benefit both the community and tenants exist and are only likely to increase, Stein added. "Shopping centers have always been the center of gathering in our country, and it's only natural that they will be suitable [within] communities for purposes other than purely shopping and entertainment — a trend that will continue."

As vaccine distribution has continued to move through priority groups and more people become eligible, large cities are also turning to their sports stadiums, convention centers and fairgrounds to create vaccination mega-sites. Even Anaheim's Disneyland recently transformed into a vaccination super site for Orange County, with Disney World in Orlando considering a similar plan in the near future. Other examples include:

• Alamodome, San Antonio
• Dallas County Fairgrounds, Dallas
• Minute Maid Park, Houston
• TCF Convention Center, Detroit
• CalExpo Fairgrounds, Sacramento, California
• Tampa Bay Center, Tampa, Florida
• Hard Rock Stadium, Miami
• Dodgers Stadium, Los Angeles
• State fairgrounds, Louisville, Kentucky

However, not just any vacant space is suitable for use as a vaccination center. According to CDC guidelines, potential sites should feature a variety of critical factors, including adequate capacity for vaccine administration and documentation, traffic flow, social distancing and sanitation measures.

Stein explained that his firm must also continue to be sensitive to the parking and visibility needs of current tenants. “We want to make sure our tenants' customers have adequate parking and that the COVID-related areas are an enhancement, not a detriment."

Sites also need to be served by efficient cold chain supply management for the storage of the vaccine vials themselves.

Although the pandemic created a surge in online grocery ordering and delivery, which resulted in strong demand for the nation's extremely limited availability of cold storage facilities, the beginning of vaccine distribution has apparently not created quite the same effect. Instead, because of the short lifespan of the currently available vaccines, the immediate issue lies with short-term storage and cold chain logistics.

State health departments and hospitals are investing in ultra-cold freezers and portable ultra-cold freezers at fixed locations. According to a December 2020 article in Scientific American, Pfizer's vaccine can be held for a total of 20 days after it arrives at a distribution point: 15 days in its delivery boxes with recharges of dry ice every five days, and then five more days in normal refrigerated conditions.

Cold storage expert Martin Khait said there is no overlap between food-grade and pharma cold storage facilities. Khait, who is co-founder of Austin-based Yukon Ventures, pointed out that while cold storage was in “tremendous scarcity" prior to the pandemic, vaccine distribution isn’t competing for this space for a few reasons, a primary one being that vaccines require much greater security. "You're not going to put [vaccine] vials next to frozen tamales," he explained. Another reason is temperature sensitivity, Khait explained, since two of the vaccines require temperatures "far beyond the capability of food grade facilities."

But that doesn’t mean vaccine distribution has zero implications for the commercial real estate market.

Logistics firms like DHL and UPS have been preparing for months to handle the special temperature requirements of the Pfizer and Moderna vaccines. In Louisville, Kentucky, for example, UPS has constructed an ultra-low temperature freezer farm with a total of 600 portable freezer units, each close to a UPS air hub. DHL opened a $1.6 million, 20,000-square-foot facility in Indianapolis in August 2020. Ultra-low temperature freezers for commercial use generally cost between $10,000 to $15,000.

Life Science Logistics, a Texas-based firm, recently invested tens of millions of dollars to add ultra-low freezer units by the end of December 2020 to its Brownsburg, Indiana, cold storage and distribution facility, citing a surge in injectable drugs. And the world's biggest pork processor, Smithfield Foods, recently offered to lend a helping hand in the distribution and storage of COVID-19 vaccines in its facilities' ultra-cold freezers.

However, while the conversion of a food-grade cold storage space may provide short-term income, it may not be a sustainable investment, explained George Smith, broker and cold storage specialist at Mandich Real Estate Advisors in Miami, Florida. "The security and systems are pretty unique, so most of it isn't transferable to other potential customers."

Building a brand new cold storage facility takes between nine and 15 months and costs at least twice as much as a dry warehouse, especially if the cold storage facility must meet special temperature requirements.

Smith said he isn't aware of any cold storage operators holding the vaccine in their facilities just yet. "That being said, I believe we are still in the early stages. My partners at Mandich Group have had discussions with authorities on potential storage in the future."

Future COVID-19 vaccines may likely not require ultra-cold freezer storage and only need regular refrigeration, like the flu vaccine. But what remains certain for now is that millions of people across the country still need a place where they can come together to be safely and effectively vaccinated against COVID-19. Those with spaces to offer may find themselves with an opportunity.