Warehouse/industrial space next to Amazon warehouse?

Question

We are evaluating a purchase of ~30k square feet of warehouse space next to a new Amazon distribution center. Part of the space would be used by the owner/operator for his business (I am an investor in his business) and we would lease out the other space.

In general, would there be any obvious pros/cons to purchasing industrial space next to an Amazon warehouse?

One concern is that the warehouse was built for a single tenant, who subsequently bought out their lease and it has sat vacant for over a year. COVID may have been part of the reason for the vacancy, but also there seems to be a shortage of space in the 5000-50,000 ft space, so it’s a little curious that it’s still vacant.

We are doing a site visit today and wanted to hear what you think about investing near an Amazon facility.

Chris Blackburn · Answer

$135 a foot and an 18 month wait to build and the potential for materials to go up an additional 30%... No thank you.

We were just looking at a 120,000 concrete tilt-up and the cost was at $116 a foot.  Used buildings are looking better and better.

Ronald Rohde · Answer

I don't see any major pros, major con is going to be the traffic impact from the Amazon site. They will have a huge volume of trucks. You have to evaluate your purchase on the vacancy risk alone, IMO.

Marco Rodriguez · Answer

Light industrial "hacking" makes tremendous sense. Commercial rates are lower for a user than an investor. A local bank offers 3.9% vs 4.25% loans. As an industrial real estate agent, I have clients do this regularly. Their tenant helps cover the mortgage. As the landlord's business grows they can choose to not renew the tenant's lease. Markets vary but Atlanta and NE Georgia vacancy rates are very low.

Cole Bigbee · Answer

@Luke Grogan Are you still pursing this deal?  It sounds like there is some opportunity there. Especially if half the space will be leased. You just want to make sure the other half will have enough dock doors and adequate office space for a future business. If the numbers make sense go for it!

Marco Rodriguez · Answer

Agree there is not much upside to being adjacent to Amazon. Nevertheless, the fact that Amazon is there says a lot about the desirability of the location. The county I live in has 4 Amazon warehouses and industrial land is through the roof. Residents are fighting new industrial developments thereby raising the value of existing industrial buildings. If you can make it cashflow you won't regret buying it.

Wendell Fong · Answer

YOu need to give more details. Can you specify how much of the space you will be using for your own business? Are you planning on using 5k or 25K of the 30k space? How will you set the rent? You need to specify who is the landlord and who is the tenant.  Is the owner/operator and you 50/50% owners in the business and 50/50% owners of the land? I only say this because I had a similar setup where i purchased warehouse space and my company was the primary tenant.  I (the landlord) charged my company below market rent for the space it used.   I obviously gets complicated if the splits are not 50/50.

Colton Mckell · Answer

@Chris Blackburn was that just the cost of the building, or was that with land fully improved in your area?

Luke Grogan · Answer

Thanks for the responses. It is incredibly difficult to find industrial space in Brevard County. My partner needs a location for his business if it is going to grow and it would be great to have ~4-5k feet.

Basically, we want to house hack, but light industrial hack.

The market is selling for $85-100/ft for industrial, but building what you want is ~18 months and some headaches and it costs ~$135/ft to build.

This deal turned out to be class A warehouse space. Fully under AC, clean rooms for advanced manufacturing, excellent building in every sense of the word, from a tenant perspective.

While I think the owner with sell for ~$75/foot, that makes it in the $2.1MM range and it has been vacant for 1 year.

Amazon and the developer for their site location are renting out about 3k feet and taking the offices (really just helping themselves to a 10k foot wing, which is smart of them.

I’d love to do the deal and start recruiting for a good tenant that needs class A space, while we take about 6k feet for our stuff. We don’t need it and don’t need AC, but it is niche space for the right tenant. We could also vacate at some point when we have better light industrial space, therefore moving on to the next hack…

At this point, it seems to niche for us and not the best first deal. Commercial/industrial can sit vacant for a while and this spot is unique to that (developing) area because everything else is class B and and geared toward true light industrial.

Any thoughts on this niche and the house hack model for industrial?

Warehouse/industrial space next to Amazon warehouse?

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