How do you value an industrial property?

Question

Good Morning:

I was on twitter the other day where real estate investors (primarily focused on industrial properties) were discussing in investing in contractor's garages.

Would appreciate one's thoughts as to how does one value these kinds of properties? What do lenders look for should they decided to finance a portion of this kind of property?

I look forward to your thoughts.

All the best,

Eric

Account Closed · Answer

@Eric Grunfeld , I sourced, underwrote, and closed on 8 industrial deal worth $43 million in the last 12 months. Two deals are currently in due diligence. I can share the underwriting processes. Feel free to connect with me.

Bob Solak · Answer

It kind of depends on what you are after, Eric (e.g., cash flow, appreciation, development, etc.).   My partner and I are interested in cash flow/cash-on-cash return.  So the very basic analysis is (income - expenses - financing costs) divided by cash invested  = cash on cash return.   Anything else like appreciation is just gravy for us.

Your lenders will be interested in not getting left holding the bag if things go south.  So they'll look at the lease terms and lengths, sale cost per square foot etc.  They'll adjust their loan offer to you to offset their perceived risk when they compare it to other similar properties in the area.

Ronald Rohde · Answer

I'm a buyer of industrial properties.

A) what was the twitter thread, can you share it?

B) Industrial is no different than other CRE, discounted cash flow, cap rate, tenant risk, its all the same process.

Lenders will be split into either recourse financing or non recourse. Those are two main camps, but for recourse, they look at all the same factors as a buyer, but add the net worth and ability to pay of the personal guarantors. They will look at borrower's track record of investment in this asset class and past performance on loans.

How do you value an industrial property?

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