Multi-family vs industrial/other
Currently working as an analyst on a reputable capital markets team and have a job offer to move to an acquisitions/development group. I applied to a rather open ended job posting and went through the process and was offered a position in their multi-family group. I wanted to be in their industrial group but was told there aren’t any current openings right now. I have little (if any) interest in multi/resi, and only really applied because of their industrial team
would taking the job in the multi-family/resi group hurt me as far as future opportunities focused on other asset classes or a lateral move to a different group?
Multifamily is way better than industrial
Strongly disagree
I’m going to assume you’re a more junior person.
with that, there’s always time to transition to another asset class from Multi should you want to. And if this developer has a dedicated industrial team, then that’s an eas(ier) transition once you’ve proven that you can competently cover your respective residential assignments.
I mean, wanting to do industrial over MF seems legit insane to me, I can't think of a reason why you would want that preference, but seeing as you are an analyst, I can say with some certainty that you aren't about to be pigeonholed. This is real estate - people care way more about your ability to execute in the future than they do about your past pedigree.
I’m not sure why preferring one of the “hottest” asset types over the other would be insane. It’s not like OP wants to lateral to malls or office in a tertiary/suburban market.
For industrial development, I can see why some folks would prefer it. Your development timeline will on net be shorter and that allows you to work on more projects once the land has been tied up.
It’s more a personal preference.
It's got nothing to do with what is "hot". There is more multifamily out there, there is more demand for it in the future, it's an asset class which is as protected from long term decline as one could possibly imagine, and frankly it's probably more interesting. If you want "exit opps" there are way more firms to exit into, it's probably a better route if you want to start your own firm, and there is more complexity and variety within the asset class itself.
I mean, if you want to go into the whole "what is hot" discussion, there still doesn't seem to be much to recommend industrial versus MF. If OP is interested in industrial for whatever personal reason, great! They should go ahead and do that, because doing what you're interested in is always a better move than searching for "prestige" or some shit like that. Frankly, if he was interested in building suburban strip malls, that's what he should do instead of industrial or MF. And as I said, working in a junior role on the MF side won't pigeonhole anyone into doing that forever.
Fair but having done both myself along with other asset types, neither are on the difficult end as far as complexity goes.
industrial is still well-positioned going forward. E-commerce continues to penetrate brick and mortar without nearing a saturation point. Overall, I would feel comfortable doing industrial or Multi. Really would come down to what I naturally prefer.
I’ve seen plenty of industrial folks transition to Data Centers, Life Sciences before. It’s not like either really will be a pigeon hole.
I strongly disagree. Affordable multifamily, for example, is about the most complex asset class to finance you'll ever find. This is what I mean when I say that there is more variety in MF - the projects you buy or build run the gamut of super-tall skyscrapers to historic preservation. Perhaps this is my inexperience speaking, but industrial seems pretty cookie cutter to me. When building last mile warehouses with 5 different sources of debt and equity in the capital stack becomes common, or we build 50 story distribution centers that are drone-accessible, I'll reassess that. But for the moment, I'd guess that 95% of "industrial" is just a concrete box. If someone is out there constructing purpose built steel foundries, that is pretty fucking cool, but I really doubt that is the norm in the industry.
To your last-mile warehouse point, that’s just a piece of the industrial puzzle. Even still, negotiating BTS or build-to-spec deals with the e-commerce giants can be a drawn out process that looks easier on the surface. You also have smaller/flex industrial that often times has Life Science uses which notches up the complexity and your TI buildouts because the office/industrial ratio closes in on 50-50. I’ve stumbled across some flex/office conversions that have data centers that come into play. It’s pretty interesting how the industrial world has evolved from your big box layout to try to fit into the denser areas of MSAs.
The further you dig into any asset type you will find niches that require more thought; industrial is no different. Some weird Miami area industrial portfolio of 1M SF could be made up of all 10K SF tenants. Those are always a headache and rarely have the same lease types. Maybe you find yourself a multistory deal in a dense area. Good luck finding comps and figuring out how to unlock the full value given FAR restrictions while maneuvering through entitlements with cities who are unfamiliar with the product altogether along with getting enough debt to make it pencil.
Affordable strikes me as a niche use within the Multifamily type. I never really touched on it but have friends who do and love it despite the constant headaches.
From a higher lens, both types can get go from your typical GC throwing up a prototypical build to very granular, more one-off product.
Anyway, this has been a fun discussion and I’m not knocking either asset type. I strongly believe both are good future bets for those that are just getting into the business.
You're right - this is your inexperience speaking. Having developed both, I wouldn't say one is "harder" but there are definitely different soft skills, and ultimately, preference for what a person would prefer. Multi is a lot more about getting aesthetics rights; industrial is all about functionality (think parking counts, slab thickness, clear heights, dock doors sizes/counts, dock levelers, etc.).
You have infidelity more challenges when you add in TIs and leasing to the equations on industrial property. If you have any experience with industrial, you'd understand that this is the real challenge - pivoting a spec project midstream to a BTS and figuring out what the cost to make the changes are midstream through construction, multiple structures for leases, multi-tenant vs. BTS properties, not to mention you have a lot of "brownfield" development opportunities with this asset class. The civil/urban planning components for these types of sites is enormous, and that's not even considering just large (hundred + acre) master-planned parks that take a decade to develop. Yes, the build out of an industrial property is a "concrete box" in a lot of cases but they are becoming much more complex (multi-story industrial, AR sort faculties, etc.), especially in constrained MSA's, so even this statement really isn't true.
If you use as broad of definition for multifamily (affordable housing, high rise/urban infill, condo's, garden style, podium, wrap, etc.) as you did above, you have to broaden your definition of industrial as well to all the specialty BTS type uses, cold storage, data centers, etc in fairness.
As someone that does both multi and industrial, I would say that industrial can be just as diverse as multifamily development. There are a ton of subcategories within industrial and I've had the opportunity to work on some really interesting and complex buildings. Now, I still think multifamily is more interesting b/c it's a B2C product and you can play with a lot of different design aspects. My stance has always been that industrial acquisitions are more fun than multifamily acquisitions, but multi dev is more interesting than industrial dev.
Affordable housing will always be the king of complexity, but you know better than anyone that very few multifamily developers play in the affordable space (my firm does both but we are unique in our market). Your standard garden development in the SE is just as cookie cutter as a tilt up concrete box. More complex from a design perspective for sure, but cookie cutter all the same.
EDIT: pretend this post doesn't exist, I responded without reading OP and thought we were talking acquisitions of existing assets rather than development. Agree that multifamily development is far hairier and more difficult than industrial and a better learning ground for that aspect of real estate. On the flipside, if we're talking investing in existing assets I would argue the other way around.
Imagine reading this post 5 years ago
I am a generalist deal officer at a megafund. My advice is that if you want to be a career general real estate investor, go multi. Sure, there are some nuances with industrial, particularly in different MSAs, but it’s not rocket science. Having a foundation in multi is a good home base that should allow for flexibility throughout your career.
While industrial was the belle of the ball from 2020-2022, it wasn’t always that way and will likely revert to the mean soon. The land of singles and doubles but nothing wrong with that.
If you want to be a career developer, choose wisely.
For a long time, I idealized industrial because I read so many articles about how hot it was. I ended up in multifamily.
Now? I'm glad I ended up in multifamily. I still think industrial is cool and I am fascinated by the logistics planning and strategizing that is inherently important to that business. Thinking about Amazon's heat map, or where FedEx and UPS need to have hubs, is interesting.
I never had any serious bites at industrial firms beyond one protracted networking relationship that veered towards an offer periodically over time. I ended up in multifamily AM, as I became more focused on the role and less on the asset class.
Multifamily is a huge asset class. Inherently, I feel it is slightly more robust than industrial for that reason. More firms do it. More multifamily assets exist, which require multifamily asset management, which means I will hopefully be saved from being jobless (or at least will be partly shielded from that).
Very few firms, relatively speaking, do a ton of industrial. In my market, there are certainly some great small shops - and a few REITs and REPE shops - that do it, but I would not say that there are many. I had coffee with an Acquisitions guy from an industrial REIT a couple years back. He graciously gave me some of his time to talk about life at the firm. He said, "At this point in life, I worry a little that my entire expertise is in industrial buildings in Florida".
So you would rather tour a concrete box in the middle of nowhere then have lunch with your investors at the local Panera bread over touring your high rise with views of midtown followed by dinner at a steakhouse?
I've done both multifamily and industrial development. Regarding complexity: I've found that industrial involves a lot of analysis of site work, which can be highly technically complicated. Site drainage, ledge, unsuitable soils, etc. The specific site conditions and the design have a major impact on returns and need to be analyzed very carefully.
The immediate response is that these things aren't unique to industrial development- you have to deal with them in other asset classes too. But I've found that they're more significant in industrial for several reasons:
First, industrial buildings have very large building footprints and typically cannot be stepped to work with the grade. They also require large paved areas that have to be relatively flat. Ideally you have a flat site with good soils and no ledge. But if you have any deviation from that- big slopes, ledge, old fill that needs to be removed and replaced with imported material- suddenly you're doing a ton of expensive site work. Multifamily, on the other hand, has smaller and/or more flexible building footprints, and the design can be more easily adjusted to work with site conditions.
Second, industrial vertical costs per square foot are lower, so site work makes up a bigger percentage of the overall hard cost. Swings in site costs due to specific site conditions have a bigger impact on overall returns. So they need to be studied very carefully, especially early on.
This is a great argument, I appreciate someone providing actual reasoning for why industrial might have more complexity in some areas than multifamily.
I will point out that this is a little reductive when it comes to site analysis for multi. The very flexibility of layout that you get when building MF leads to further complexity in terms of foundation and SOE work. If you have 100,000 sq ft site, yes, the whole thing needs to be nearly flat (or so you claim, which sounds right to me) to build an optimal industrial facility. However, whatever excavation and leveling of dirt you're doing is in some ways offset by the simpler foundation needs; I could be wrong, but I would assume a mat foundation would suffice, if only because you are spreading the weight of the building out and it's not particularly dense. Whereas you could concentrate all your FAR for MF on 1/10th of the site and build upwards a lot more easily, but that would also require an enormously expensive foundation to drill and engineer.
Quite the opposite of additional complexity, that implies to me that industrial is limited to sites which are naturally favorable for larger footprints, and you wouldn't buy if you were on a 15 degree slope. Whereas multifamily is far more likely to engineer around the contours of the land or the specifics of the subsurface, and thus is probably going to require a fair bit more work at the end of the day (on average, obviously there are exceptions to everything)
My understanding this that is more true in interior markets where land is widely available. But in more expensive, land-constrained coastal markets like mine, where there aren't many industrial sites available, you kind of have to take what you can get. So you end up with sites that have a lot of hair on them.
I have enjoyed reading some of the replies to the original post. I work for a large regional developer who does both MF and Industrial (we do Office too, but that part of our business has obviously been pretty lean the last few years).
I agree with one of the posters here who says that putting the capital stack together for MF can be much more complicated. It can. The capital stack for Industrial is not complicated at all.
However, assemblage of large pieces of land for industrial is a fun undertaking and entitling industrial sites can get very complex. The typical warehouse (which is generally what we think about when we are talking industrial) is a very simple structure to build (not that MF structures are very complex either). However, industrial buildings include the category of manufacturing which are far more complicated than any MF project. Even modern fulfillment centers have a huge amount of robotics, and systems in general. Cold Buildings have their own set of nuances. Data Centers. Etc. So unless you are talking about just a typical distribution center, industrial buildings can get very complex.
Additionally, the complexity of site work on an industrial site (and the inherent risk associated with that scope of work) makes MF sites look like child's play; obviously you can have MF in dense urban areas that have their own site issues to contend with like zero lot lines or what have you but generally industrial sites are far more challenging to develop.
When it comes to leasing, these two groups are just totally different. On one hand, you are trying to lure usually just one or two tenants, but you have to go through a lease negotiation process that can take months between teams of lawyers representing either side (and you are very concerned with the credit rating of the tenant as it is main driving force behind your eventual exit cap rate). On the other, you can be leasing to hundreds of different individuals.
Most of the skills are transferable to the other. I would think though as an analyst, you are going to see more of the front end and less of the actual development process (I could be wrong but that's how it works for analysts at my shop) so I would suggest going to the MF side and learn the financial modeling and get as much exposure to the equity partnership and debt financing activities that are happening at your company.
I will add though that far more money can be made on a good industrial deal versus a great MF deal and you can generally get in and out in under 2 years as opposed to 5+ for a large MF site.
Great post. There was a lot here that I had not thought of, being a multifamily guy who used to dream of going into industrial.
Question: what is your perception of asset management at an industrial developer/owner/investor?
I have an acquaintance or two with the industrial REITs but no one I am super close to. I am curious what their world is like. After working through pricing calls and analyzing cap-ex spending/associated premiums on the multi side, I feel like industrial would in some ways have simpler and more predictable operations in some ways. At the same time, no individual tenant issue in multifamily can generally sink you - and in industrial, I imagine it can.
I cant speak to owner/investor, because where I work we are strictly a merchant developer. But the asset managers at a development shop are fully responsible for the deal from soup to nuts. They are the ones that have the relationships with the equity partners, the banks, the brokers and, hopefully, more than a handful of national tenants (talking about having relationships with the guys who make decisions on behalf of the tenants as far was what building they will lease).
They put the financial modeling together (well, actually they have an analyst do that but the asset manager will usually prescribe the assumptions) and they are expected to really understand the market fundamentals for any particular deal (where occupancy rates and rents are headed, what the big moves are going to be in the coming years) at a very deep level. At the end of the day, they pull the whole deal together and are responsible for it's execution and the ultimate outcome. Fortunately, they get to farm out a lot of the heavy lifting with Due Diligence and Development. The Development Manager does that, but reports to the Asset Manager.
The economics of industrial is very straightforward. There is a ton of risk with a huge amount of reward. It is really all about having insider information on any big market moves and putting yourself in a situation to be in the middle of it.
Sorry I could not speak more to the investor/landlord side.
Multi/resi underwriting is, maybe even a joke if we’re being honest. And unless you’re doing institutional multi, brokerage is a mess.
From a development perspective what makes industrial harder to underwrite? Multifamily with any affordable component is more complex to underwrite from a development perspective than industrial.
Acquisitions-side, agreed.
1. Long term principal experience is valued way more than the brokerage side. Take whatever you can especially early on.
2. Why industrial? It's a hot market, but you're literally putting up four walls and that's it. It's the trend right now, but go back 5-10 years industrial was not popular. Also think about how long rents have gone up for that market, what has it been like 20-30%+ YoY growth for years in some of these markets it's insane. I'm surprised it's still going strong, there's no way to justify such insane growth for 5+ years it gets to a point where people can't afford it. If we go into a recession you will see, no way is space worth $30-40/SF in some of these markets like NYC it's crazy. Brokers will always push the oh logistics, last mile, etc but there are so many who have not put any thought into it and are just chasing the wave for deals.
3. Continued from part 2, but think about a durable asset class that has been around is popular.... multifamily. This may not be what you want to do, but it gives you a lot of opportunities to jump from this shop as there are a majority of shops that focus on this asset class and you can have the opportunity to jump to one that focuses on multi and other asset classes. Industrial I think you will pigeonhold yourself in as it's hot now, but what happens if it gets crushed in 1-2 years what then? You know how to build and UW open boxes with NNN lease like a million others in acquisitions that have flooded the space. You won't have the option to jump to someone you worked with either if the market falls. Multi will give you the opportunity to work with an asset class many people know and focus on, despite recessions and recoveries it is still a very popular asset class and I would say the most popular out of all. If you focus on industrial you only know that space which looking at history has been hot maybe the last 10 if not 5 years at most before that it was a shitty asset that no one touched.
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