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One reason we like Class B Industrial - we aren't competing against new supply, so we can forecast competition.
The lack of available land in city limits for industrial creates barriers to entry.
Often, even if there is land, it's not priced for industrial.
The lack of available land in city limits for industrial creates barriers to entry.
Often, even if there is land, it's not priced for industrial.
Lastly, if someone was able to find affordable dirt, the hard cost to construct is too high to make sense.
Most tenants in this asset class are using the space as a function of their business, with minimal attention to how "nice" it is.
Most tenants in this asset class are using the space as a function of their business, with minimal attention to how "nice" it is.
Don't get me wrong, we always want to deliver a clean property, but tenants aren't looking to pay large increases in rent just to have something that is newer and nicer - so new development doesn't make sense.
Therefore, you see virtually zero new supply.
Therefore, you see virtually zero new supply.
On top of that, we actually estimate that in Texas we lose 1-2% of the Class B Industrial supply annually due to repositioning or redevelopment of these properties.
They are often targets for new Mixed-Use Districts, creative office, residential, entertainment/gyms, etc.
They are often targets for new Mixed-Use Districts, creative office, residential, entertainment/gyms, etc.
Tenant demand is growing and supply is shrinking.
We like that.
Yesterday, a potential LP asked me what happens if a lot of this retail is converted warehouse/distribution to compete with Class B Industrial.
That's a good question.
We like that.
Yesterday, a potential LP asked me what happens if a lot of this retail is converted warehouse/distribution to compete with Class B Industrial.
That's a good question.
The cost for the owner to re-configure, combined with the likelihood that their all-in basis is likely predicated on needing retail rents - makes it virtually impossible to deliver competing space at a rental rate that can compete.
So there either needs to be a large amount of distress in the market for properties to receive a new basis from new buyers, or properties need to reconfigured in a way that convinces tenants to pay a lot more for reconfigured retail as opposed to leasing a competing CBI building
The end.
