Owners Stepping Up to Buy Industrial

"If you're a smaller user with a good cash flow and believe in your business, real estate is relatively stable and is a tangible asset," says Moody Younger, Texas' managing director with Grubb & Ellis Co. "This, compared to the stock markets, which have been volatile. These entrepreneurs see owning as more of a controlling thing, where they can gain security and control."

Furthermore, "there are a lot of family-owned or partnership companies in the D/FW area, and they find that real estate is a nice vehicle for investment," explains Transwestern senior vice president Greg Cannon. "They're in a stable position and can afford to own without worries about expansion."

Industrial product trading these days aren't not huge; typically they are less than 50,000 square feet, and are bought for anywhere between $5 million and $25 million. Both Younger and Cannon acknowledge their companies have been trading a substantial number of the smaller buildings; Grubb & Ellis has traded two or three so far, while Transwestern has closed on four deals.

Though many of the owner-occupants have some cash to burn, this is not to say that owner-occupied buildings aren't financed. "Industrial real estate has been steak and potatoes for a lot of lenders," Cannon comments. "Lenders are comfortable with this type of real estate because they know owners aren't going to buy a building without being ready to make payments on it."

He tells GlobeSt.com that financing has opened up for this product group, especially among U.S. Small Business Administration lenders. Through an SBA loan, a borrower can pay 10% down, and get an interest rate between 5.75% and 7%. Life companies want a higher down payment, up to 20% down, but will underwrite loans for as long as 15 years.

Banks, in the meantime, also want a higher down payment, of between 15% and 20%, and are currently comfortable with the shorter loans of three to seven years. This isn't in stone, however. "If you have a good banker relationship, and depending on the property, the banks are willing to be flexible," Cannon comments.

Younger tells GlobeSt.com that the trend in owner-occupied industrial will continue, especially as the price gaps between buyer and seller are starting to tighten. Because of this, "we'll likely start seeing closings really picking up, particularly toward the end of the year," he predicts. "And I hope next year we'll see a more stable market when it comes to transactions."