Are Warehouses Good to Buy

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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
7y

I don't focus on warehouses but the investors I have seen that do focus on (at market or below rents & BOLT down businesses) as KEY drivers for investment.

BOLT down means that the business in general has expensive and heavy equipment that is difficult to move tied down to the space physically and trying to go to another location would prove a major disruption to the business.

Businesses that can pick up and move in an instant tend to have more negotiating leverage especially if the market has high saturation levels of that asset class product in the same rent range. Warehouses can tend to have contamination issues so makes sure to get a recent environmental phase one report completed. Many warehouses are functionally obsolete for todays national tenants and do not have the tall ceilings and over expanded bays so the typical renter in that case is a more regional to mom and pop type business. 

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  • Aaron K.
    Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
    7y

    @Rebecca Seidler depends where but they can be risky as they are much more likely to sit vacant for months or even years than residential. In my area there are still lots of vacant warehouse buildings that were built years ago. This is partially because the larger companies just build their own.

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  • Tim Johnson
    Lender · Grand Rapids, MI · Member since 2018 · 703 posts · 446 votes
    7y

    I love smaller warehouse buildings.  I have had great luck with them.  I like buildings that under 20k sqft and you get at least 2 plus business in them.  My area we have huge demand for them, and they are easy to rent out say 2sqft to guy looking for storage or a small contractor.  Those guys don't need office space, just a place to store stuff and work out of it.

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  • Omar Khan
    Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Rebecca Seidler:

    Does anyone buy warehouses? Was researching that area and it appears lucrative. Looking for the real deal though from the BP community. 

    That depends - how much are you buying them for and where they are located. 

    No asset is too expensive or too cheap if the fundamentals work.

    1Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    7y

    I don't focus on warehouses but the investors I have seen that do focus on (at market or below rents & BOLT down businesses) as KEY drivers for investment.

    BOLT down means that the business in general has expensive and heavy equipment that is difficult to move tied down to the space physically and trying to go to another location would prove a major disruption to the business.

    Businesses that can pick up and move in an instant tend to have more negotiating leverage especially if the market has high saturation levels of that asset class product in the same rent range. Warehouses can tend to have contamination issues so makes sure to get a recent environmental phase one report completed. Many warehouses are functionally obsolete for todays national tenants and do not have the tall ceilings and over expanded bays so the typical renter in that case is a more regional to mom and pop type business. 

    Podcast Guest on Show #47
    NNN Invest53 Reviews
    WebsiteView Page
    3Reply
  • William Thresh
    Developer · Syracuse NY · Member since 2018 · 47 posts · 24 votes
    7y

    My company specializes in the BRRRR strategy for warehouses. Just closed on one last week. You need to learn your market and what buildings rent. Our perfect warehouses a 15,000 SQFT, two dock doors, drive in door, and high ceiling. Once you get a NNN tenant in a warehouse locked in for 5 years its very rewarding. Message me ill answer any questions you have.

    2Reply
  • Ronald RohdePro Member
    Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
    7y

    Warehouse is booming in Texas but most new construction is 100k sq ft+ definitely a niche in the smaller buildings willing to lease 1-5k sq ft...

    0Reply
  • Dushyant Ravi
    Lender · Irvine CA, United States · Member since 2019 · 58 posts · 35 votes
    7y

    In commercial real estate, the product type is generally called industrial. Sub types are manufacturing warehouses, distribution centers, flex/R&D facilities. Industrial along with multifamily has been the best performing CRE product type by far in the last decade. I worked on Blackstone's acquisition of Gramercy, one of the largest industrial REITS and underwrote 95 industrial assets as part of the transaction. Investors are very bullish on the product types as the market forces are favoring it. Access to highways, clearing heights &loading docks, ESFR sprinklers, and above all tenancy is critical. Blackstone's transaction included a lot of single tenant Amazon warehouses, those are as safe as it gets due to investment grade status of the tenant. But, I have also financed a single tenant industrial building where a candle manufacuturing company was the tenant. This was one of the largest companies in the space with a 100 year old history and its customers included Walmart and it was still a tough transaction because of the single tenancy risk and the lease was rolling prior to LED, at that point it becomes a business loan as opposed to a real estate loan. Also pay attention to how much TI/LC's are generally given to industrial tenants in your market and what is the downtime once a tenant vacates. That will indicate the strength of the market.

    1Reply
  • Rebecca Seidler
    OP
    Member since 2019 · 18 posts · 6 votes
    7y

    Thank you, @Dushyant Ravi that was a great education. I appreciate your input. 

    0Reply
  • Harry Jacobs
    Member since 2018 · 4 posts · 0 votes
    7y

    Here in NY/ NJ Warehouses are very hot for various reasons, and investing with a developer specializing in this particular market, who knows the in’s and the out’s of this market actually delivered me unbelievable great returns after developing and selling to end users desperately looking for class A warehouse buildings in the area.

    I’m currently doing my diligence on another great opportunity in this market and will see what happens.

    0Reply
  • Rebecca Seidler
    OP
    Member since 2019 · 18 posts · 6 votes
    7y

    Thank you @harry @Harry Jacobs. I am very intrigued by warehouse investing. I have to check the Orlando market to see if it would be a good investment or not. 

    0Reply
  • Jade S.
    Investor · Evans, GA · Member since 2015 · 190 posts · 103 votes
    7y

    I give a big thumbs up to flex industrial product under 20,000 sq feet...1-3 NNN tenants on 3-5 year leases has worked well thus far. Not to mention not much spec product being built in many areas. Turning one of my spaces now for a food distributor that signed a 5 year lease. Far less management intensive than my SFR portfolio.

    0Reply
  • Kaiser J.
    Rental Property Investor · Charlotte, NC · Member since 2018 · 82 posts · 123 votes
    7y

    Yes, they can be very good investments.  The best thing about industrial is that the build times are very short (~6 mos.) relative to other types of commercial such as apartments and offices.  This means that a developer can break ground based on given market conditions and open the door in fairly similar conditions, as opposed to an office/apartment developer who may be facing a very different market when they are open for business.  This leads to less volatility in the asset class since developers don't get caught off-sides and flood the market with excess supply.

    Like all real estate, location is paramount. Access to highways, for example, and major metropolitan areas. The leases are great because they tend to be 3-7 years on a NNN basis.

    In terms of market dynamic, try to buy in an area where spec development is currently limited by a high ratio of construction costs to rent.  

    Always underwrite with an assumption that your property could go vacant for 1 year when the lease expires.  This is not an asset class that you should own without substantial reserves.

    Look for a warehouse to office ratio of roughly 90/10.  Lighting upfit can be relatively inexpensive because some utilities will offer rebates for modernizing that.  Sprinkling a building is very expensive and often the biggest upfit cost.

    0Reply
  • Nicholas Lohr
    Investor · San Francisco, CA · Member since 2015 · 302 posts · 206 votes
    7y

    Does anybody rent these to cannabis based businesses?  

    They are becoming a very hot item in my area these days.  I'm starting to hear some chatter about a shortage. And with the passage of the farm bill and the legalization of hemp I can see a huge demand coming.  Hemp takes up a ton of space. 
     

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