Valuing industrial properties what to look for
If you had two similar properties what key characteristics would you look for? You can be as granular as you want thanks so much
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slap a 3 cap on it and wear cowboy boots and the property is yours, JK!!!
WALT & lease roll over are critical, TI& LC are below NOI so take that into account, credit vs noncredit credit loss, general vacancy (tight market so hard to use high vacancy factor) and NNN vs gross leases (you want to convert gross to NNN from a strategic value add repositioning if rents are gross at least renewal or for new tenants). Industrial is the new MF so caps will be low depending on the market or get aggressive on market rents at lease roll over for appreciation play. Most likely the deal won't pencil using base case assumptions but you will have to make a bet, hence 3 or maybe 4 cap in a core or hot industrial market to win the deal. Industrial is not a CF play but an appreciation play in the current cycle in my opinion! DO NOT USE A MF MODEL for commercial, I have seen idiots do this without taking into account LC & TI and they got smoked!!
Also, look at power, access to highways & supply chain, loading bays and floor to ceiling height for the amazons & 3PL type tenants.....and don't forget the cowboy boots and 3 cap!!
Excellent points. I would also double-emphasize clear height for those 3PL/e-commerce types. Can't fit that many racks in an 18' clear height!
I had an interview question for an industrial REPE shop once and was asked this exact question. The answer my interviewer was looking for was the quality of the tenant
If they are similar size in same area - clear height/truck court depth and other functional aspects that affect future tenancy. Look at what the newest class A warehouse leases for. How does your product compare to that? Understand how the rent differentiates. Look at City use restrictions. ESFR sprinklers or no? Can they rack product without in-rack sprinklers? LED lighting throughout already? That affects how much capex you may need to put in up front to get the rents you want or expect. Roof is another big expense. Get a roof report. Is it good for a while or do you need to allocate funds sooner? Another overlooked item - environmental. Lots of old warehouses may have title blurred because of an old leak that was never closed out. Does it become your problem now if you buy the building?
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