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Updated over 4 years ago on . Most recent reply

Account Closed
  • Landlord
  • Seattle, WA
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Does anyone have industrial properties?

Account Closed
  • Landlord
  • Seattle, WA
Posted

I'm certainly a newbie when it comes to commercial investing. I have a good understanding of the due diligence required for multi-family, many aspects that should be considered for retail/office, but industrial properties is a whole other experience.

For those that have invested in industrial properties, can you tell us something of your experience?

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Don Konipol
#1 Innovative Strategies Contributor
  • Lender
  • The Woodlands, TX
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Don Konipol
#1 Innovative Strategies Contributor
  • Lender
  • The Woodlands, TX
Replied

I have found the ownership of industrial property to be very hit or miss. I have a small warehouse space (10,000 square feet) in a small town in Texas I acquired through a foreclosure when the borrower (I was the lender) defaulted on his mortgage. I put it up for lease with nothing but a sign and an asking rent sufficient enough to give me a 22.5% cap. I received a phone call from a potential tenant (not the strongest credit) within a month, and since this was the only call decided to forego requiring a decent balance sheet. The tenant negotiated me down to a lease rate sufficent to give me an 18% annual return (we had only lent 55% of value) and a three year lease with 2 three year options. The tenant has been there 7 years now and with the exception of one month has always paid his rent reasonably on time.

On the other hand I purchased an old car dealership in a much larger Texas city, spent over $100k converting it to specifications for a fairly decent credit tenant, the tenant moved in and their second monthly rent check bounced. Within 2 months the tenant declared bankruptcy, their reorganization plan was accepted by the court which also voided our lease. I owned the property for 2 years, was never able to get any other tenant, and finally sold at a substantial loss to an end user.

Now granted I was dealing in "B" property in secondary locations, but since I was trying for double digit annual returns (not including any property appreciation, just cash flow), "A" locations were out of the question. The big risk I see now is that property owners are willing to tie themselves into long term leases with long term options and small defined rent increases. If and when high inflation hits having 25 years of low fixed rents (even if from an "A" tenant, will not allow you to participate in the important inflationary protection aspect of property ownership. I now feel it much better to accept a lower return to obtain a lease that provides for rent increases tied to the CPI.

  • Don Konipol
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Private Mortgage Financing Partners, LLC

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