When considering real estate investments, a wide array of asset classes awaits discerning investors. While multi-family, retail, and self-storage typically dominate the conversation, an often overlooked and yet increasingly attractive option emerges: multi-tenant industrial real estate. This asset class offers many benefits for investors seeking to diversify their portfolios, generate steady income streams, achieve capital appreciation, protect against inflation, and optimize risk-reward parameters.
Multi-tenant industrial properties, which are typically comprised of wide, single-story concrete buildings with roll-up doors and a combination of front-office and warehouse space, boast a remarkably diverse tenant base, including e-commerce enterprises, last-mile distribution centers, retail fulfillment hubs, robotics assembly, light manufacturing firms, the construction trades, tech startups, and food preparation facilities.
Below, we present 10 compelling reasons that we believe make the inclusion of multi-tenant industrial real estate into your investment portfolio a prudent decision:
1. Attractive Risk/Return Profile: While lacking the glamour of soaring glass towers or modern mixed-use developments, our experience is that industrial real estate historically exhibits fewer volatile market value swings during economic downturns when compared to other property types.
2. Streamlined Management: Industrial real estate leases often operate on a triple net basis, with tenants responsible for property operating expenses and a significant portion of interior maintenance costs. Additionally, janitorial services and maintenance of common areas are typically minimal, simplifying property management and lower operating costs.
3. Lower Ownership Costs: Re-tenanting industrial properties tends to incur lower costs compared to other commercial property types. For instance, our experience finds that tenant improvements for multi-tenant industrial properties are up to five times less costly per square foot than re-tenanting office spaces.
4. Flexibility of Use: Industrial properties offer diverse configurations, allowing for flexible adaptation to tenant needs. These spaces can range from warehouses with minimal office space to those with a significant office component for distribution purposes. Moreover, with appropriate zoning, industrial real estate possesses greater flexibility compared to other commercial property types.
5. Diminishing Supply: A growing urbanization trend in the United States has led to the conversion of older industrial buildings into trendy nightclubs, chic lofts, apartments, and collaborative office spaces. Simultaneously, new industrial construction in urban and suburban areas remains limited. As former industrial zones are rezoned, space availability for suppliers and distributors decreases, potentially driving up the value of industrial properties in these areas as businesses prefer proximity to urban centers.
6. High Replacement Costs and Barriers to Entry: Developing new industrial projects incurs substantial expenses, primarily due to the high costs associated with land acquisition and entitlement. Although industrial properties are typically single-story and relatively cost-effective to build, they require significantly larger land areas compared to vertical projects like offices, multi-family residences, and hotels. Consequently, municipalities may not perceive the same tax revenue potential from industrial development, potentially exerting upward pressure on rental rates and appreciation of existing industrial properties acquired below replacement cost.
7. Evolving Employment Landscape: According to the SBA, small businesses with fewer than 50 employees currently drive 40% to 50% of job growth in the United States, a trend expected to persist in the foreseeable future. Many of these enterprises are likely to seek expansion within multi-tenant industrial projects and business parks.
8. Surge in Internet Retail: E-commerce, a rapidly expanding segment of the economy, now accounts for 30% to 40% of industrial real estate demand, according to the National Association of Industrial and Office Park Owners. With e-commerce projected to represent one-third of all retail sales within 15 years, traditional brick-and-mortar stores will increasingly shift operations to industrial properties, primarily warehouses, and e-commerce fulfillment centers.
9. The 3D Printing Revolution: As the business world eagerly anticipates the transformative potential of 3D printing, reputable publications such as Forbes Magazine and The Economist are hailing it as “The Next Industrial Revolution.” This burgeoning technology, expected to extend far beyond personal applications, is set to drive explosive growth in the industrial sector over the next decade. As a result, industrial properties are primed to house the flourishing 3D printing industry. Moreover, the impending surge in industrial robotic manufacturing and assembly, widely reported by industry experts, will directly impact the landscape of industrial real estate.
10. Home Building and Construction: The construction industry, a key tenant segment of industrial properties, stands to play a vital role in their continued success. Avistone, LLC (“Avistone”), a prominent industry player, recognizes the potential for expanded activities in crucial sectors such as new residential construction, alternative energy infrastructure, and the renovation of aging roads, bridges, and utilities. These developments are poised to generate a positive ripple effect, bolstering the value and demand for industrial properties. With a strategic focus on regional markets exhibiting these robust economic drivers, Avistone positions itself to capitalize on these promising opportunities.
For the investor looking to get into industrial real estate investments, consider going with Avistone. We are a growing real estate investment firm specializing in capturing opportunities in the multi-tenant industrial market. Our executive management team has years of experience in the business and is well-versed in everything from acquisitions to asset and portfolio management.
Over the past decade, Avistone has completed full-cycle investments on 24 industrial projects encompassing 4 million square feet, surpassing industry performance benchmarks such as the NCREIF Property Index for Industrial Properties. Avistone’s previous multi-tenant industrial fund delivered a commendable 20.24% Internal Rate of Return (IRR) and 9.15% cash distribution yield over a 3.01-year holding period. *
Avistone LLC has also recently launched its latest offering, Avistone Industrial Parks III, LLC.
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*IMPORTANT DISCLOSURES: This communication is intended exclusively for the private and confidential use of accredited investors. It is transmitted by the sponsor of the investment opportunity, Avistone, LLC, or one of its affiliates (referred to as "Avistone" or "Sponsor") and is provided solely for informational purposes. All information and opinions contained herein, including assumptions and projections (collectively referred to as "Projections"), are furnished by the Sponsor. The Sponsor and its affiliates make no representations or warranties regarding the accuracy of such information and disclaim any liability in this regard. None of the content in this communication is intended to create a binding obligation on the part of the Sponsor or its affiliates. This communication is fully qualified by reference to the comprehensive information regarding the offering set forth in the Sponsor's offering documents, including any private placement memorandum, operating agreement, and subscription agreement (collectively referred to as "Offering Documents"), which should be carefully reviewed before making any investment.
The Projections provided by the Sponsor, including target IRR, target cash-on-cash, and target equity multiple (referred to as "Targets"), are hypothetical and are not based on actual investment results. They are presented solely to provide insight into the Sponsor's investment objectives, outline anticipated risk and reward characteristics, and establish a benchmark for future evaluation of the Sponsor's performance. The Sponsor's Projections and Targets do not constitute predictions, projections, or guarantees of future performance. There is no assurance that the Sponsor will achieve these Projections or Targets. Forward-looking statements, including the Sponsor's Projections and Targets, inherently involve a variety of risks and uncertainties, and actual results may substantially and materially vary from those anticipated. Refer to the applicable Offering Documents for disclosures concerning forward-looking statements. Projections and Targets, including forward-looking statements, should not be the primary basis for an investment decision. Avistone and its affiliates do not provide any assurance regarding returns, or the accuracy or reasonableness of the Projections or Targets provided by the Sponsor. Past performance does not predict future results. The historical performance record of Avistone is not indicative of future outcomes. Third-party audits have not been conducted on the performance of Avistone's prior projects. Differing property offerings and commitment dates for individual property offerings resulted in varying returns for investors.
The metrics of the Full-Cycle Track Record on industrial properties are calculated based on weighted averages that treat investment dollars equally and are computed by aggregating the outcomes of all Avistone full-cycle industrial property investments, with weights corresponding to the respective capitalization amounts for each Full Cycle Investment. This real estate investment is speculative and involves substantial risk. There is a potential for a partial or complete loss of principal investment and should only be undertaken if you are prepared to bear the consequences of such a loss. Thoroughly review all of the Sponsor's Offering Documents, including any "Risk Factors" therein. For additional information concerning risks and disclosures, please visit https://www.avistone.com. None of the content in this communication should be considered investment advice, whether regarding a specific security or an overall investment strategy. Reproduction or distribution of this message to any individual or entity outside the recipient's organization is prohibited without the express consent of Avistone.