Considering the current cap rate environment, what are some solid covered land plays you have seen in the market in terms of operating businesses, product type, attributes, etc., that can be pulled off with relatively low investment capital? Mainly thinking about high growth markets (Austin, Denver, etc.) where there will be significant land appreciation in the next 5-10 years.
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EDIT: this is the TL;DR version of comment below.
Cash Flow near/mid-term -> Reposition to creative office -> lease to a bunch of hipsters/weird startup for exorbitant rent -> $$$Profit.
Old commodity industrial buildings (light industrial) in the path of gentrification (infill) aren't going to be that big. So there's a pretty good chance the targeted exit isn't going to be institutional capital. See: El Segundo.
EDIT: Also, the rent spread between creative office vs. industrial and the cost savings of 'creative office' you can achieve from doing this (as opposed to slugging a ton of capital in a multi-story CBD office building) will make the risk profile much more compelling.
You having any luck getting things upzoned for multi in El Segundo (or heard of anyone who has)? Close to zero institutional product in that pocket which I can't see lasting forever...
Multifamily; there is gobs of creative office and multi tenant office/industrial there.
Yep - I figured but just wanted to make sure before I went on a tangent. The creative office as you mentioned has been pretty lucrative, there's a lot of that there and we have done several projects in that pocket which has been really successful. The multifamily side as I'm sure you know is a completely different story. We had a site lined up but it was barely too close to the airport for us to get an overlay (broker had pitched to us that it wouldn't be a problem, but it was... had to drop the deal). We have another site under control that I think we have a good shot at getting the nod on, but too early for me to disclose/give any certainty on. I've heard that there are a couple of groups circling the waters, but there just hasn't been a huge push given the easy money that's been in the creative office and industrial market there. In a lot of cases, the land is more valuable for office/industrial given where the rents have gone even if you do get it zoned for multi depending on the density.
So short answer, haven't been lucky so far, hoping that changes this year, nothing definitive yet though.
EDIT: One thing I forgot to mention, we have had more issues with environmental than the zoning board directly, FWIW. I guess it's chicken or the egg though, zoning won't clear us until the environmental is squeaky clean, and we can't really know what the scope is of the environmental work until zoning gives the OK.
Local light industrial facilities tend to have high occupancy (this is empirical) and thus, stable CF and the quality of more than covering your DS. This allows one to "buy down their basis" while you await the city reforms / up zoning / overlay.
Communities want to knock down old, ugly industrial as soon it becomes an eye sore. Expanding "hip" neighborhoods/ office areas eat away at this brand of product for that reason.
In order for communities to beautify the old industrial stock up zoning must be passed.
The result is ownership of land that has a higher and better use and (ideally) a low land basis as you've been CFing.
Doesn't have to be industrial, could be anything ugly but in the path of growth. Don't want to give too much juice, but you get the basic idea.