What to know about: Investing in Industrial

We have said it before, and we are saying it again here: the industrial sector is booming. Smaller retail businesses have been forced to pivot to online offerings, thereby limiting their physical brick and mortar presence. This means industrial activities, such as manufacturing, production, assembling, recycling, and research & development, are inevitably set to increase to fulfill the more abundant quantities of orders that come with the ease of online shopping.

Whether you are refurbishing a dilapidated industrial piece, making a market value purchase, or constructing one from the ground up, industrial buildings are a great investment to focus on right now. When diving into the details, there are a few things we recommend you consider:

1.) BUILDING MATERIAL

Prior to signing on board, carefully review what the building is made of…concrete? steel? wood? stone? Structural soundness and knowing what materials hold-up in certain geographical conditions is key. For example, in desert environments, insulation tends to inhibit heat transfer and drive down energy costs especially in the summer with rampant A/C usage (source).

Whether you’re funding ground-up construction or minor facelifts to a site, it’s recommended to obtain soil reports, like Phase 1’s, geological reports, water erosion, etc., to better inform any potential structural and/or land hiccups in the future.

READ: CONSTRUCTION CONTRACTOR CHALLENGES

2.) CURRENT INSURANCE

Specific elements like roofs, pipes, fire /water safety, and vertical transportation (where applicable) often require insurance. If it is an existing building that you have purchased with the intent to renovate, or even one at market value, it’s vital to obtain insurance documents that disclose when each piece of the building is ending it’s ‘operational cycle’. Walking the property with a general contractor and or the owner will inform which subcontractors, if any, you might need to tap to facilitate repairs.

3.) LEASE TYPE & USES

Industrial warehouses are oftentimes single tenant properties with long term leases. Become familiar with the city’s permitting procedures and costs, as well as any relevant zoning restrictions. A standard or optimal office-to-warehouse ratio is 10:90 (source). So, ensuring your space is flexible enough to accommodate different types of uses is key (i.e.: manufacturing, production, assembling, recycling, etc.).

4.) TENANT MIX

Assessing the financial strength of your tenants is key; are they stable? Are they corporate owned, or franchised? Are they able to pay on time? What is their financial history? Is the rent required in the Lease Agreement within their thresholds? In addition, knowing your tenant’s goals and ensuring there are complementary businesses in the surrounding area is advised to ensure steady success. As noted above, many industrial facilities are single tenant; however, it could be beneficial to split risk by bringing in two or more tenants to one facility, so that you are not relying solely on one tenant to fork up rent.