Obviously location is king, but i'm not as familiar with industrial assets. Proximity to a port or shipping possibly?
With office, would look at location, proximity to talent, lease rollover and risk, are tenants highly correlated, if capex is needed soon, barriers to entry, incoming supply.
What else for industrial or office? Thanks.
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For industrial, bay depth and clear height are important. Proximity to interstates is also nice. You will also want to see how the building is loaded (side loaded or cross-docked) and whether or not it has a truck court and/or trailer storage.
Office is more of a fickle beast. I'll let the office guys chime in there.
Not sure why you got MS for that entirely-accurate response. Have a banana.
Have two bananas.
You folks are the real MVPs
This is a good answer.
With industrial space everything is logistics.
With office towers you have to think about the quality of life of the employees who have to show up there every day.
Consider five Times Square in Manhattan. An exceptionally gorgeous building that just happens to be in close proximity to a gaggle costumed characters charging tourists money for photo opps. The employees of Ernst & Young, the anchor tenant of the building are just so tired of it and want the firm to move the office over to Hudson yards and get away from these Elmo's.
Get granular with tenant reimbursements. When do they increase, decrease, or end? Are you capitalizing a non-recurring income stream? Who is reimbursing you? A reimbursement income stream from a credit tenant is worth more than the same reimbursement from a Mom and Pop tenant.
Total guess but for Industrial: tenants and location/proximity to mass distribution options.
Anecdotal: Town I grew up in has a relatively small airport (compared to JFK, O'Hare etc.) but MASSIVE distribution centers/industrial less than 5 minutes away for cargo and freight - some are fortune 500 companies.
Figured I'd throw that in there to solely not look at ports/shipping. There are a few private equity firms that invest in that niche.
Tough question to answer on office because it is the most complex:
Location: public transit access, proximity to major thoroughfares, garage access/ease of use, proximity to retail Design: core to window depth, ceiling heights, views, prestige, parking ratio, efficiency/core factor, ease of splitting floors/understanding stack strategy, amenities, HVAC system quality Tenancy/Leases: tenant credit profile, lease rollover schedule, tenant options (ROFO/ROFR/expansion/termination/contraction)
Industrial: - Clear heights are key - Number of shipping dock doors is also important - Condition and physical state of the roof and roof membranes - Office-to-industrial space ratio within the facility/warehouse - Proximity to highways
A bit more on the property inspection side... check for concrete "sweat" or puddles seemingly appearing out of nowhere on the floor. This means that the waterproofing under the floor slab has holes or is torn up, and this can be a very, very expensive thing to fix if you need to store anything that is sensitive to water or humidity.
Can someone explain why an owner/operator of one particular asset cannot pivot to another asset type.
For example, if I’m a multi-family guy who has been investing in those particular buildings for a while, why can’t I start investing in offices or industrial?
Is owning Office that much harder from residential if you understand the basics? Besides leasing, TI, reimbursements and everything listing above etc. what’s the number one thing stopping you from investing in multiple assets? Because you don’t have a competitive advantage on the bigger players since it isn’t your core competency?
The logical transition for those who always do high-density residential is mixed-use.
A lot of times, a tendency towards specialization relates to capital requirements. In a typical office lease deal, you might need a huge chunk of cash to fund leasing commissions and TIs while you are running negative cash flow giving rent concessions like abatement. All of those items can be funded through a lender, but the documentation process and the ease of securing financing are significantly more difficult.
For others, the risk profile and return profile to investors may not align switching asset classes. If you are doing value-add multi deals where you are boosting NOI through limited capex improvements, you can count on delivering some kind of COC yield with a lot less downside risk with respect to vacancy. In office, a single big tenant rolling can drop your occupancy to zero overnight and force you to spend big dollars to refresh the building to attract a new user. Those structures frequently do not draw the same kinds of investors.
As someone who has done both office and resi acquisitions/development, office is 5x more complicated.
Ricky Rosay agree with the sentiment there. Not from personal experience, but I just had a networking meeting the other day with a guy who owns MF resi, retail, and office. One of the questions I asked him was "what's the best asset class in your opinion?" his reply was something to the effect of: "personally i like multifamily the best because of the rent roll and occupancy volume. 3 people move out, there are other people who are ready to move in. retail is a bit scary - i stay with the strips of 5-6 mom and pop shops vs. a large retailer like Best Buy. if best buy moved out, I'd have a much harder time filling it."
TLDR: you're not automatically eliminated from pivoting into a different asset class. You just need to present a convincing investment pitch to a) your investors (if you have them) and b) lender. it also helps if you have someone with that asset class experience (hotel, office, etc. who knows the nuances)
With respect to commercial space you cannot ignore the intangible benefits of assets that are priced in, but not necessarily valuable to you.
Accumulated depreciation is one such factor. There is a reason that major insurance firms love office towers. They like to swap out of commercial assets when they reach the end of their depreciation cycle and into new ones where they can start a new cycle.
If accumulated depreciation is not a benefit that you can leverage, you have to think about that as it is already priced in.
This is a good answer.
Office space does have its challenges. You can't ignore the fact that the benefits of accumulated depreciation are priced into assets you may want to buy. If you are unable to benefit from this you are at a disadvantage.
In today's environment, perhaps nothing is so challenging as standalone retail.
Industrial: - Clear height - Building depth - Column spacing (must be adequate for clear height) - Fire Sprinkler system (ESFR etc) - Truck court depth - Truck parking capacity - Power (switchgear as well as what was pulled into MSB from primary) - Ratio of dock doors to floor space - Lighting - How easily divisible is the building if you want to add tenants - How suitable is the type of building (multi tenant, bomber single tenant etc) to the current and projected leasing trends - Capacity for expansion onsite - Roofing condition/type (built up, TPO etc) - Can you secure the truck court for single/multi tenant set up if not currently secured
spoken like a true industrial expert
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