You may have heard of the term “flex” used before to describe a commercial real estate property, but do not know what it means or why it seems so popular among investors. This includes terms such as “flex warehouse,” which has only in recent years begun to gain popularity. Traditional office space such as these went under different names, such as “public warehousing” or “multi-client space” but all referred to a flexible industrial property.
Flex properties give business owners and companies everything they need and the room to grow, customize, and expand their space however they see fit. This rise in popularity among businesses has provided opportunities for investors looking to get into commercial real estate investment, whether new or more experienced in the industry.
Flex space, short for “flexible space,” is a form of commercial real estate that gives companies office, retail, and warehouse space. These buildings can be stand-alone or located in dense, industrial parks. They are often one story but may be more. Units have a warehouse door or loading dock with a higher ceiling height, too, typically around 14-16 feet tall. Flex warehouses come in a variety of shapes and sizes, which only enhances their existing versatility in use. Typical layouts for a tenant include an office space up front with the storage or warehouse space in the back.
The versatility of these spaces attracts a wide variety of businesses across industries, including construction, manufacturing, e-commerce, medical and logistical distribution.
This ability to have a space for offices, warehouses, and manufacturing under one roof is just one reason why these properties are so popular. During the pandemic, conditions prompted more consumers to purchase their goods online, which resulted in businesses changing their strategy from in-store shopping to warehouse distribution points. Increased demand has also made them a popular choice among real estate investors.
For any businesses just getting started, these spaces are a great option because they provide the necessary office space as well as useful warehouse or manufacturing floor space. This layout allows employees to communicate face to face when needed and allows them to move between working on the manufacturing floor and the office, when they need the use of a computer. As an example, a design company could use the building for design offices and then house construction materials in the warehouse below.
One of the other appealing aspects of flex space can be its customizability. For example, if a tenant or tenants want to increase their office space or warehouse space, they can easily do that with this type of industrial property. Typically, improvement costs are reduced compared to office properties.
Traditionally, Class A or B office buildings have improvement costs that are higher than those found in flex spaces. For example, a Class A office building could have improvement costs ranging from $20 – $40 per square foot, while the flexible industrial space has a range of $5-$20 per square foot.
This ability for customization extends to its tenants, too. Unlike multi-tenant office buildings that usually only cater to companies such as law firms or insurance companies, flexible assets can accommodate tenants that can range from construction companies and manufacturing companies to retail-style restaurants. Customizable buildouts allow for a strong mix of businesses in each industrial park that a normal office building would not be able to accommodate. This means landlords are mitigating the potential risk involved with changing real estate markets or demand. Their tenants are diversified between national and local companies and across industries.
Perhaps one of the strongest benefits of flex industrial assets is the way most landlords are able to structure their leases. With these properties, most tenants typically fall under a triple net lease structure. In this lease structure, the landlord passes three key expenses onto the tenant: taxes, insurance, and common area maintenance (CAM).
The first two are self-explanatory. They include property, or real estate, taxes and any insurance needed to protect the asset from theft, nature, or other potential disasters. CAM, on the other hand, describes any expenditures related to utilities and general maintenance such as landscaping, cleaning, or even parking lot expenses.
Multi-tenant office buildings often have the landlord paying for those expenditures mentioned above, which can cut into any potential returns. The assets give the owner or investor, the unique opportunity to avoid these costs. Instead, they only have to worry about paying large capital expenditures.
Not to be overlooked, shared flex industrial spaces can lead to multiple businesses being housed within the same property. Shared common areas allow both management and employees to interact with staff from other businesses, too. This may encourage further interaction, business deals, and generate greater productivity or attract further clientele.
Whether a new or experienced investor, flexible assets are a great commercial real estate investment. Their versatility allows both tenants and their landlords to enjoy lower costs and full customizability. They also benefit investors by shifting some of the financial responsibility onto the tenants, which may increase potential returns.
At Avistone, flex industrial spaces are part of our firm’s portfolio. We seek to deliver yield, inflation protection and long-term capital appreciation to our clients by investing in these multi-tenant industrial properties. Our team of dedicated real estate investment experts work hard each day to improve and increase the operating efficiencies of each property. We invest alongside our investors and take a hands-on, team approach to ensure each investment we make provides maximum yield to all of our stakeholders.
If you are an accredited investor looking for opportunities in industrial properties, contact us!
© 2023 Avistone, LLC. All rights reserved.
*IMPORTANT DISCLOSURES:
Communications from Avistone, LLC or its affiliates (referred to together as "Avistone"), whether it is transmitted through its website or any other marketing platform used by Avistone (collectively termed "Avistone Communications") must not be interpreted or meant to be taken as recommendations or endorsements to purchase, sell, or hold any securities. Furthermore, Avistone Communications should not be considered as advice related to investment, taxation, finance, accounting, legal matters, regulations, or compliance.
The content provided herein and through Avistone Communications must be reviewed in conjunction with related private placement memorandums and other offering documents to comprehensively understand the risks associated with the securities to which it pertains. Participation in private placements necessitates substantial and sustained financial commitments, the capacity to withstand a complete loss of the investment, and minimal liquidity requirements. Avistone’s website and Avistone Communications imparts preliminary and generalized insights regarding the Investments, intended solely for initial reference purposes. It does not encapsulate or consolidate the entirety of applicable information. The information within is subject to qualification by and subject to more intricate details as presented in the relevant offering materials. Avistone is not registered as a broker-dealer. Avistone disclaims any assertion or warranty to any potential investor regarding the legality of an investment in any Avistone Investments.
Investments in securities or real property involve inherent risks and are exclusively available to accredited investors, as defined in the Securities Act of 1933, who comprehend and willingly assume the elevated risks associated with private investments. These risks encompass, but are not confined to, market fluctuations, credit vulnerabilities, interest rate exposure, and the prospect of partial or total loss of invested capital. Prior to investment, one should: (1) conduct an independent investigation and assessment; (2) meticulously evaluate the investment along with all concomitant fees, expenditures, uncertainties, and risks, including those stipulated in the offering materials; and (3) consult with individual investment, tax, financial, and legal consultants.
The content presented in Avistone Communications is neither intended as a recommendation nor a form of investment counsel, nor does it signify an entreaty to procure, vend, or retain a security or investment strategy, and it is not imparted in a fiduciary capacity. The information provided does not factor in the specific goals or circumstances of any given investor or propose any particular course of action. The information reflects Avistone’s interpretation of the prevailing market milieu. The viability of achieving the objectives of any Avistone fund or investment, or averting substantial losses, cannot be ensured. Investment determinations must be formulated on the basis of an investor’s individual goals and circumstances, and in collaboration with their financial professionals. Historical performance is not indicative of future outcomes. All research and supplementary information supplied through Avistone Communications is crafted exclusively for informational purposes, and Avistone assumes no accountability for any inaccuracies or omissions within the content of this website or any linked resources.
All approximated financial and investment benchmarks, inclusive of forecasted internal rate of returns (IRR), yields, multiples, and investment holding period returns, as displayed on Avistone Communications, stand as conjectural projects of performance exclusively, are hypothetical in nature, are not to be regard as actual investment outcomes, and do not present guarantees of future results. Such approximated benchmarks are invariably accompanied by intrinsic risks, encompassing but not restricted to market volatility, operational ambiguities, and limited liquidity, and do not signify or assure the real outcomes of any transaction; and no assertion is made that any transaction will, or is likely to, attain results or profits akin to those depicted. Moreover, additional financial metrics and calculations shown on Avistone Communications (including amounts of principal and interest repaid) have not undergone independent verification or audit and may diverge from the actual financial metrics and calculations realized for any investment. The investment data contained herein is sourced from entities Avistone believes to be reliable, yet no assertions or warranties are made as to the accuracy or comprehensiveness of said information, and no responsibility is accepted for the same.
Avistone’s historical track record showing past performance is no guarantee of future results. The performance of Avistone’s prior projects have not been audited by any third party. Not all investors received precisely the same returns due to differences in their respective commitment dates for individual property offerings. Full-Cycle Track Record average metrics are based on weighted averages that treat investment dollars equally and are calculated after summing the results of all Avistone full-cycle investments, weighted by the respective capitalization amount for each Full Cycle Investment.
Investments in private placements are speculative and involve a significant quantum of risk, and those investors whose financial situation cannot withstand a complete loss of their investment should abstain from investing. Moreover, investors may receive securities with limited liquidity and/or constraints on transferability, subject to specified holding duration prerequisites and/or concerns about liquidity. Investments in private placements inherently entail a high degree of illiquidity, and investors with an inability to retain an investment over the long term (at least 5-7 years) should refrain from investing. Real estate and alternative investments should only constitute a component of a broader investment portfolio.
Private placement investments are not equivalent to bank deposits (and consequently lack FDIC insurance coverage or safeguarding by any other federal government agency), are illiquid, are not endorsed by Avistone or any other entity, and may depreciate in value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or endorsed any investment, or authenticated the accuracy or exhaustiveness of any information or materials furnished via Avistone Communications. Investors must be financially prepared to absorb the complete loss of their investment.
Materials or data emanating from third-party media external to this domain or Avistone Communications may address or refer to Avistone or correspond to information contained herein, however, Avistone does not extend endorsement or accountability for such content. Hyperlinks to external sites or reproduction of content from third-party sources do not denote an endorsement or approval by Avistone of the content thus linked or reproduced.