Incubator multi-tenant industrial properties are business parks made up of unit sizes ranging from 500 to 3,000 square feet. Typically the units will have a small office component (approximately 15%) and the remainder is warehouse space.
Why Incubator Multi-Tenant?MCA Realty is targeting incubator multi-tenant industrial properties throughout the Western United States due to the following characteristics:
- Replacement costs are high - Due to their typically low coverage ratios, and high construction costs, current lease rates are nowhere near justifying new construction. This fundamental allows for a prudent investor to evaluate his competition without concern for new product.
- Low tenant improvement costs - Due to the low percentage of office space in each unit, tenant improvement costs are typically minimal, decreasing the amount of capital required to re-tenant vacant units.
- Short term leases - These smaller sized units are typically leased on a shorter term basis and therefore allow the well-informed operator to increase rents more often and take advantage of an improving market cycle.
- Diminishing Supply - During the most recent market peak, many multi-tenant industrial properties were converted to condominuims and sold to individual owner/users. The dynamic removed many options from the pool of available properties.
- Financing - Lenders have historically liked multi-tenant industrial parks as they provide diversification of risk, and can be viewed as the commercial counterpart to apartment buildings.
- Management intensive - The numerous tenants and typically short term leases, require a "Hands On" management style in order to successfully operate and create value over time. This aspect deters many investors that do not have the expertise or the resources to manage these properties appropriately.
- Lack of Information - Due to the small unit sizes, lease transactions are not always tracked and commercial real estate research providers lump this product type in with other industrial assets that are not competitive. This dynamic allows the astute investor with real-time market knowledge to capitalize on market opportunities.
- Mid-size business parks - Many of these projects are between 25,000 and 75,000 square feet. This size range is too small for most Institutional Investors with lower return thresholds.