Keys to investing in industrial real estate?
For those of you with experience in industrial real estate, what are a few of the key things you look for when evaluating whether to invest or not?
Any suggestions for good books/articles on investing in the industrial space would be appreciated as well.
Location, location, location. The closer to airports or seaports, the more demanded and more expensive. Also, depends on what kind of use you are looking for. If you are talking generally, date built, ceiling height, number of docks, big extra yard, power, existence of entitlement (zoning - what uses are allowed and what uses are not), etc.
if you weren't referring to the physical aspect of it, then cap rates.
The best way to buy bulk industrial product is via a cross collateralized portfolio - the pricing and structure is so much better. Lenders struggle with one off single tenant industrial buildings because the risk is so polarized - it's either 100% leased or 0% at the end of the lease term. Portfolios eliminate this problem.
curious, I am dealing with a single tenant retail deal right now on the debt side, do you remember what you underwrote for LC and TI's? I have a credit tenant that has shown commitment to the property and recently renewed their lease that extends to 5 years more than loan maturity which is 10 years. I find it unnecessary to underwrite $1/sf that I normally would reserve for TI/LC's for any other retail.
Never financed a single tenant retail but retail TI/LC packages can vary wildly based on market, lease term and structure, tenant type, credit ratings - i.e. Banks and Starbucks command higher upfront packages but pay stronger rents and long lease terms.
Assuming you have a credit tenant and 15 yrs. lease term, you should be in ok shape in 10 yrs. at loan maturity w/ 30 year amortization. Heaven forbid you can't refi out in 10 years there's 5 years of cash flow you can sweep to amortize down your basis even more and build up a Ti/lc reserve. I'd want to know my PSF loan exposure in 10 years w/ 25 & 30 yr. amort. and then in 15 years if I sweep all cash for the remaining 5 years of lease term.
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