Opportunities in Industrial Real Estate

A few months ago, I ventured into my first industrial real estate deal and have been closely following this asset class since. Industrial real estate offers a distinctly different experience from multifamily. Its complexity and unique demands tend to draw fewer newcomers, making it a sector where seasoned sponsors with deep expertise prevail. This perspective is echoed in the latest Yardi Industrial Report (Oct 2024 - link in comments), which shows a strong outlook for U.S. industrial real estate, driven by reshoring, nearshoring, and stable port labor conditions. Highlights include: * Port Labor Stability: Recent labor agreements at East and West Coast ports reduce disruption risks. Why it matters: ↳ Stable port operations lower costly delays, enhancing demand and pushing up rents and values for properties near high-traffic ports. * Reshoring and Nearshoring Trends: Manufacturing is moving back to North America, led by Mexico and Canada. Why it matters: ↳ Domestic industrial properties near key production hubs are likely to see rising occupancy and rental rates. * Land Scarcity in Key Markets: Areas like New Jersey and Southern California face land constraints. Why it matters: ↳ Limited land in high-demand areas drives up values and rents, making industrial assets here especially valuable. * Seaport Proximity for Logistics Efficiency: Reliable port operations are crucial for supply chains. Why it matters: ↳ Properties near major ports attract steady demand as tenants prioritize resilient logistics. Challenges: ↳ Regulatory changes, land scarcity, and infrastructure issues could impact property values and rent dynamics, underscoring the importance of adaptability. *** Industrial real estate is poised to benefit significantly under the incoming administration, yet it remains one of the less understood asset classes among passive investors. ♻️ repost so others can learn more.

Generally speaking people love the industrial real estate asset class compared to the others because: - The buildings are bullet proof. They are concrete boxes that last for many, many decades with minimal maintenance. - Tenant improvement costs are VERY low, especially compared to office and retail. Not uncommon that TI’s for an industrial tenant are $0.50 - $3 psf. Compare that to office tenants who often need $50 - $150 per SF. Not a typo. - Very little CapEx exposure. Roof, HVAC and parking lot are the main ones. - Easy to manage. NNN leases are common with tenants maintaining HVAC, roof membrane, all doors and windows, landscaping, etc. Landlords typically commit to maintaining only the foundation and walls and structure of the roof. - Strong credit tenants. The e-commerce trend has pushed all major corporations into this space. E-commerce as a percentage of overall retail sales has increased about 1% a year for the last 20 years. Many believe we are only in the fourth or fifth inning of this game which bodes well for demand long term. - Supply is becoming increasingly limited. Older established markets have an aging supply. In Los Angeles close to 60% of the buildings are over 45 years old. The features of these buildings don’t work well for modern tenants. - Supply is further tightened because of NIMBY-ism and stricter local zoning regulations making it harder for developers to build new industrial. Everyone wants their package delivered in two hours but no one wants the warehouse in their town. Ironic. - When you own industrial you typically control a large chunk of land, especially compared to dense office or multi-family properties. For the same price of a 15 story office building on one acre of land you can have a 300k SF warehouse on 15 acres. Long term, you want to control the land. More options, more real estate, more wealth. Long live the mighty warehouse.

🔍 Are Tariffs the Problem—or an Opportunity in Disguise? What if rising tariffs on imported goods could actually benefit certain sectors of the economy—like real estate? A recent article in North Jersey dot com highlights how New Jersey companies are adapting to potential tariffs on imports from China, Mexico, and Canada. While these tariffs may increase costs for businesses, they’re also driving a shift toward domestic production and automation. This creates challenges—but also significant opportunities—for real estate investors. Key insights from the article: 1) Rising Costs: Tariffs could raise the cost of imported goods by 10-25%, forcing companies to absorb these costs, reduce profits, or pass them on to consumers. 2) Domestic Manufacturing: Businesses are exploring local sourcing and production to reduce reliance on imports, creating potential demand for domestic manufacturing spaces. 3) Automation Investments: Companies are turning to automation to offset rising costs, increasing the efficiency of domestic production. What Does This Mean for Real Estate Investors? 1) Industrial Real Estate: As companies onshore manufacturing, demand for warehouses, logistics centers, and industrial spaces will likely grow, presenting an opportunity for investors in this asset class. 2) High-Tech Facilities: Automation requires specialized infrastructure, increasing demand for advanced industrial spaces near key manufacturing hubs. 3) Workforce Housing: Increased domestic production could lead to job growth in manufacturing regions, creating opportunities for multifamily investors to provide housing for local workers. The Opportunity: While tariffs may pose challenges, they’re also accelerating a shift to domestic production and innovation. This creates a unique chance for real estate investors to benefit from the increasing demand for industrial properties and workforce housing. Are you considering the potential to invest in industrial real estate or housing near manufacturing hubs? How do you think these shifts will shape the future of real estate investing? #PowerOfPassiveRealEstateInvesting #YourLegacyOnMainStreet #BuildingWealth

Tech adjacencies round 2 - power capacity is redefining industrial real estate.   The first chart is yet another way of showing on-shoring and how seminal of a shift COVID was. Demand for manufacturing facilities is up 50% per year on average since COVID. Demand for manufacturing space is increasingly coming from power hungry companies, like aerospace and defense and robotics firms.  While a traditional industrial building has a few hundred amps of power capacity, these power-hungry operations require 10-20x more power. What we are seeing in our portfolio is that 1) these firms are willing and able to withstand higher rents (more income for property owners) and 2) high power capacity buildings are appreciating faster than traditional industrial buildings. Put that together and over the last year, properties we own with 4,000 amps or more have generated higher total returns than lower capacity buildings (second chart). This trend is just getting started.