I work in acquisitions at a REIT that focuses on both office and industrial however in my short career I have mainly focused on office and have more exp touring office and knowing what to look for/focus on. Can someone who has experience shed some light on industrial assets and what you focus on when touring a potential acquisition.
Also, I think it would be interesting to hear from those who have experience in acquisitions and property tours and what you look for in various property types.
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By the time I actually visit the property I have a really good feel for the scope of work to be done on the property. I look for things that need repairing or replacing and double check that those are included in the scope of work. I always make sure to check for signs of asbestos as that can drastically increase our costs if someone misses that. (True story- one time we started a gut rehab project and 2 months into construction discovered a basement full of ACM that no one knew existed...oops)
I also like to take a look at the roof. I'm far from a roofing expert, but sometimes it is painfully obvious it needs replacing even though it's not on the budget for quite some time and that can represent a expense early in the deal's life.
If the tenants are staying in place, I like to talk to them and ask what they like or don't like about the property. Maybe they have problems with water pressure or heating and that needs to be examined.
I also spend a good deal of time touring the neighborhood or area immediately around the subject property. As much as I hate "location, location, location" there is some value to where the property is located. I want to make sure the building isn't surrounded by a bunch of run down structures or vacant property, and get a feel for which way the neighborhood is heading. I mostly deal with multifamily properties, but I have prior experience with office and industrial. I'm curious to hear other members take on this as well.
I work in investment sales with both office and industrial, so I'm part of the team that's usually giving you the tour. Some things I know we tend to highlight include clear heights, accessibility of the site, whether the property is front load or rear load, truck court depths, dock heights, etc. A lot of industrial tends to be used as distribution centers for the tenants, so like @"picklemonkey" said, location, accessibility, and proximity to major thoroughfares is a big highlight
Since you work at a REIT, your insurance standards likely need a PML under a certain amount for all of your buildings. If it's not, you'll need to factor in capital for a seismic retrofit (usually for older buildings). The roof/skylights will almost always be the other biggest capital project to factor in.
Make sure you take into account the amount of Mezz, and whether that square footage is included in the building SF. If the space is leased see whether that SF can be released to a new tenant. Also whether you'll need to finish out the Mezz or any other office space that is in shell condition.
Other things are more common sense that the post above references: Count the doors, does the parking lot need a slurry coat, asphalt or concrete truck court, new monument sign, new exterior painting needed, are the GL roll-up doors broken, who are your neighbors, etc.
What are the main things you look for in office?
Office walkthroughs usually focus on tenant/leasability issues and overall building condition issues: Tenant issues: window line and views, floor efficiency/core factor/how floors split to accommodate multiple tenants, ceiling heights, floor plate size relative to what tenants want in that specific market, column grid, restroom/common area condition, quality of amenities, parking garage condition Building issues: roof condition, age of HVAC/mechanical equipment, garage condition, condition of building common areas, performance of building energy model, opportunities where one could add value (ie new fitness center, conference center, etc.)
Rick Rosay summed it up perfectly....check to see if there is any below grade space if so can this be leased and at what rental rate? Are current tenants full utilizing their space or does it look like they may need to downsize ect. If it is a single tenant building can it accomidate multiple tenants and is it feasable based on the layout/costs. With regard to building system issues this has already been covered but obviously with office you are much more concerned about the condition of the HVAC equipment, elevator modernization ect.
All good comments above, although capital repair items are a little different. 100 times out of 100 I'm going to defer to our property engineers (or whomever performs your Property Condition Assessment) on matters relating to roofs, parking lots, HVAC/evap coolers, etc.
IMO, site visits are about understanding why tenants choose this property. That's your customer. Is it location? Functionality? If there is a vacant space why isn't it leasing? Good point above accessibility/clear heights, for example. Driving around and getting a feel for amenities and demographics of course helps, as Picklemonkey brought up.
Odds are we don't know the building like the people who have worked/lived there for years. Best way to learn about this is by talking to people - property managers, maintenance staff, tenants, brokers, and so on. Otherwise you're just checking out Google Maps in person.
This. I work in development and it is the same rationale for touring the property. It's all about understanding the property - to grasp what condition it is in (but not in-depth), to walk the neighborhood, see how it lines up against potential comps. When it comes down to building remediation/repositioning I rely on PM's, engineers, and construction consultants for their input.
I always try to casually ask the manager or whoever is in charge where they commute from or whats their commute like? Try not to be creepy. Hopefully you can get some info on why the tenant is located there. There's only a handful of reasons why (most) industrial tenants are in a building. Location to labor, location to customers, location for management who doesn't feel like f'n driving an hour to work. Obviously there are other reasons for being there but you can at least check one or two off the list. If a tenant needs rail service or 38' clear heights or food safe (whatever the f its called) space these are easy questions. If the tenant is a 3PL its always nice to know who they have a contract with? (Credit or some nobody) And how long that contract is? (Not that they will necessarily tell you).
I'm not climbing on any roofs, if that needs to be replaced the broker and owner should know that in DD it will come out and the price will change.
I work in MF acquisitions so I will comment on that:
Things I look for - - who are your neighbors/what's is right next to your property (trailer parks, competing properties, SF homes, vacant/developable land) - The cars brands in the lot and how many cars in the lot at a given time of day (ie: lots of beat up/old cars at 11 am signifies a lot of retail/restaurant workers live there imo) - Property condition from a high level (landscaping, roofs, parking lot, access gate, exteriors, hallways, leasing office) - How the property stacks up against the comps (Are the comps nicer/rent at a higher rate? Is it possible for us to close the gap? what do the comps have we don't? do we have structural deficiencies relative to the comps that explain the rent gap?) - Who are your tenants? Where do they work? Where do they shop for groceries? Are they willing and/or have the ability to pay higher rents? - What is the retail like in the area (Wholefoods and target or Aldis and k-mart?) - Opportunities for value add (can we actually execute this value add program? Is there anything else we can do or maybe something we shouldn't do? Can we knock down an amenity to add something else like a dog park?)
In regards to getting a feel for if a neighborhood is changing - how can you tell if this is happening? What are you looking for?
One of the exercises is to gauge the stability of the property's in-place cash flow commitments (the leases). If your industrial property has all investment grade tenants on long term lease structures, maybe you don't allocate as much brain damage to this, but if you're playing in the mid-market to bush league arenas, you're more likely to encounter shorter lease terms with lower-grade tenancy. To that end, while on your site visit -
Try to triangulate. No one has a crystal ball and rarely are things spelled out perfectly for you, but having them things in mind will benefit your assessment of tenancy risk more than just looking at lease expiration dates on a rent roll
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