Industrial

What would be your role at the firm?

I'm not involved with industrial now, but covered a few industrial assets as an analyst in asset management a few years ago. When I think of industrial, I breakdown into a few categories: large distribution, last-mile delivery warehouse, flex warehouse, and light manufacturing. Those are probably not the official terms and I'm sure some people here would disagree. I noticed a different buyer pool for these asset types and there's a few different metrics that are important to each.

Big picture - you need to know if the market is a major transportation hub, the drive times to next major supply chain routes in that market, which could be an airport, seaport, highway, etc. Demand side, really need to understand what type of space is still available before you start developing. Is the vacant product just outdated, bad location, or is there just not enough demand. I found the last-mile delivery type of space most interesting because there's a lot of markets where there is a ton of demand and very few opportunities to acquire existing industrial zoned product or vacant land, so you will see some old industrial sites trading at awesome cap rates.

Asset competitiveness - How many truck bays and what is ceiling clear height (determines how much storage). Distribution tenants will analyze the space more on the the cubic square feet available vs. floor square footage, manufacturing tenants maybe not so much. Last-mile delivery, location to dense residential is more important than clear height. Column spacing in warehouses is common competitive advantage because it determines how flexible it is for tenant to lay out the space. Site layout, how much space will there be to stage trucks or trailers. What is the truck traffic flow into the bays and exiting the bays. How much additional site square footage is needed for parking lot just for trucks to back into bays. Is it a right turn in or out (determines drive times to the highway).

Other - Most industrial is NNN, so you really need to understand how your NNN rent compares to competitive property and also so on NNN/cubic foot or yd. New development should be more efficient, but how are taxes getting assessed in the jurisdiction? Tenant credit analysis is important because buildings are usually single-tenant or just a few tenants, so lenders will put a lot of effort into this, so you should too if your firm is relying on high leverage.

If you get into industrial - really try to understand the industrial and supply chain industry and not just the real estate portion. 10-20 years down the road, self driving cars and drone delivery will be a game changer (in my opinion). WSJ has a section just on supply logistics, and lots of other sites out there. Knowing that there is going to be a labor strike at the LA seaport has major impact on other markets, but you wouldn't see it in the markets for 3-6 months in sale comps. Knowing when the LA seaport is going to be open to accept supertankers and what is the cost to send 1 super tanker to LA vs. 2 small tankers to east coast from China is more advanced analysis, but ultimately determines demand for some types of industrial real estate, eventually you start thinking about how fuel prices affect real estate for shipping routes and driving vs. rail.