Why Investors Are Banking on Multi-Tenant Industrial

Industrial has become the darling of commercial real estate, particularly on the West Coast and in Southern California. Within the popular asset class, multi-tenant industrial properties have become a popular choice for investors. BKM Capital Partners is among the most active multi-tenant industrial buyers in the Western US. Last year alone, the firm’s multi-tenant industrial acquisitions totaled $545 million and 3.5 million square feet. This year, it has purchased a two-property portfolio in San Diego totaling 99,187 square feet. The firm is bullish on the niche industrial class as both defensive play and a way to reduce operating costs.

“We like to think of our product type as apartments for the industrial user,” Brett Turner, managing director of acquisitions for BKM Capital Partners, tells GlobeSt.com. “With its low turnover costs and short-term leases, BKM has the ability to raise rents to market quickly earning a high cash yield. Its also a defensive play, as no one industry accounts for more than 12% of our rent roll leading to minimal credit loss, even through an economic slow down.”

This year, BKM plans to maintain its active buying status in the market, and it will likely have opportunities to remain a net buyer. “In 2018, we saw record-breaking institutional portfolio sales,” says Turner. “As expected, we have seen these portfolios trimmed by their new owners, who are seeking to reduce management intensity and lay off the multi-tenant product. These assets have long been neglected by third-party management and provide the opportunity to enhance value through the BKM platform.”

It will continue to focus on properties with a value-add play in strong submarkets. “Our plan for 2019 is to continue to target properties in locations with strong demand catalysts that will drive appreciation as we add value to the properties with cosmetic and structural improvements,” adds Turner. “Within the existing competitive landscape, we need to maintain discipline and keep our focus on acquisition opportunities that are in line with our strategy and core competencies.”

To stay competitive, BKM is leaning on its reputation and industry contacts in the market. Focusing on this niche market gives it a natural competitive edge. In addition it is well capitalized to take advantage of deals. “Our vertical integration and strong capitalization gives BKM a unique ability to act quickly by performing tremendous due diligence upfront and closing all cash,” explains Turner. “We have in-house research, construction, leasing, and property management departments feeding data back to the acquisitions team in real time, tightening the diligence period.”

Still, competition is the biggest challenge in the sector, and according to Turner, there has been an increase in players in this space. “As light industrial comes in vogue, we have seen an increase in competitive interest,” he says. “However, it’s still a slim field and we are able to execute significantly below replacement costs. Along with the emergence of e-commerce and same-day delivery requiring in-fill locations congruent with our product, we expect a continuation of growth in the space.”