As the commercial real estate storm continues, those betting on asset classes likely to thrive industrial outdoor storage —if they can find increasingly rare traits.
The niche industry is still young and not without its challenges, such as a fragmented seller base and difficult financial markets. But during and after the sharp recession 15 years ago, he grew into a $200 billion asset class, proving his resilience in previous crises.
Managed truck parking lots and outdoor vaults did well during the 2008 recession. Timber Hill Group Chief Operating Officer and Co-Founder Ryan Battistoni said: Bissnowat the State of Industrial Outdoor Storage Digital Summit on January 18th.
But little attention was paid at the time, he said — a mistake repeated given that the e-commerce boom has spurred a surge in demand for the declining number of remote IOS lots. Battistoni said if the overall market were to soften again, it would likely bring more demand and opportunities in the IOS space.
“If a carrier has a certain number of equipment in a mission-critical market for their business, and their business is down 20%, that doesn’t mean they’re stuck with their equipment elsewhere. said Battistoni. “This means that demand for outdoor storage and truck parking actually increased slightly.”
Matt PfeifferManaging Partner Altera Property Group,this is $500 million or more bet So far, IOS says the early days of the pandemic showed crisis resilience. At the time, e-commerce had a big boost, but other transportation logistics tenants weren’t necessarily looking for long-term storage.
“We had tenants in the bus transportation business. During Covid, there weren’t many people on the buses,” Pfeiffer said. We were able to recover the fee.”
Tenants will always miss a rent payment, but finding tenants and charging favorable rent is not one of the problems facing the industry.
Battistoni said he doesn’t see any real risk of rising vacancies or slowing absorption rates, but the very rapid growth in rents will likely wane in the coming months. Founder Benjamin Atkins agreed, pointing to 50% to 100% year-over-year increases in rents that Zenith has seen in some markets.
“I don’t think it will last,” Atkins said. “But I think when people don’t understand his IOS space, they basically think of it as a truck parking lot. It’s actually a very diverse pool of tenants.”
Top row, left to right: Daniel Laub of Zenith, Michael Rabin of Open Industrial, and Ryan Battistoni of Timber Hill Group. Bottom left: Dan Haroun of Catalyst Investment Partners, Benjamin Atkins of Zenith, Matt Pfeiffer of Alterra Property Group
One of the big challenges in IOS real estate is finding large deals, said Michael Rabin, CEO of Open Industrial.
With a limited number of properties across the country, many of which are owned by family-owned operators, there is naturally a high volume of smaller deals. Rabin says this has contributed to the lack of brokers “trapped” in selling and leasing his IOS assets, making it difficult to outsource the leasing and management of properties.
“Compared to other asset classes, it takes a disproportionate amount of human capital to really scale in this business,” said Rabin. “There is more work to produce due diligence than the due diligence provided by the seller, and this is additional work.”
And since the property is just land rather than improved property, he said, it leads to low prices and fees that are unattractive to brokers.
There are also always zoning and environmental challenges when it comes to creating new outdoor storage.
According to Atkins, IOS zoning is a gray area. Local governments often don’t consider these uses until development is complete, forcing them to adapt in real time. Many urban construction sectors are overwhelmed, so it’s important to consider delays in the permitting process when planning how long it will take to activate a site, he said.
Pfeiffer says there isn’t much available land zoned for outdoor storage either. And it can be difficult to convince local governments to do so.
“‘Let’s do more outdoor storage, where taxes are cheaper and roads, bridges and tunnels are more utilized, but it doesn’t create a ton of jobs compared to traditional industrial uses,'” said some local governments with skepticism. showing reaction. Pfeiffer said.
Like self storage Two other asset classes that have grown in popularity in recent decades, manufactured homes and IOS, are considered mostly recession-proof. But while self-storage and manufactured home tenants are individuals, IOS deals with Fortune 500 companies.
This makes it more likely that IOS will be institutionalized. Last year, Alterra completed his $524 million capital commitment for the first composite fund focused on IOS properties. Big companies like New York-based Thor Equities are also making big investments in this space. reported by PEREZenith and JP Morgan have also launched a $700 million joint venture focused on asset classes.
Pfeiffer said the asset class has a “long runway” to institutionalization. One hurdle is securing funding. The advantages of IOS should be very attractive to lenders, but the problem is convincing them of it.
“What happens when our space goes bad? We lost a tenant. said.
“We really have what lenders really want. We’re just getting that message across and proving it to them.”