This week we sat down with Managing Principal of Avistone, Rich Kent, to find out why Industrial assets are the focus of their investment strategy. Check out their latest Acquisitions in the Avistone Industrial Property Fund here.
The following are solely the opinions of Mr. Kent and do not constitute financial advice or counsel from RealCrowd. As always, please consult your investment advisor prior to making any investment decisions.
Avistone focuses exclusively on the Multi-tenant Industrial Real Estate sector. Compared to other
types of real estate – or even to other types of equity investments – we believe Industrial RE
offers investors numerous competitive advantages.
- Attractive Risk/Return: We will be the first to admit: industrial real estate is not the sexiest
type of investment you can have – no soaring glass towers, jazzy store fronts, hip mixed-use or
classy apartments. Yet that is exactly the point: Industrial RE seldom has the wild swings in market
value and therefore rarely has the downside risk inherent in other property types during times
of economic weakness. Realizing 8%+ cash-on-cash returns and 14% to 22% IRRs (total returns),
with less volatility, translates to an attractive trade-off of risk and return, and better sleep at
- Ease of Management: Industrial RE is primarily leased on a triple net basis where the tenant
pays its share of the property operating expenses and most of its interior maintenance costs.
Additionally, industrial tenants do not require interior janitorial service and industrial properties
rarely include interior common areas that need to be maintained by the landlord.
- Lower Cost of Ownership: Re-tenanting costs for Industrial RE tend to be lower than other
commercial property types. For instance, the cost of tenant improvements for a new office
tenant may range from $15 to $25 per square foot, while tenant improvements to Industrial RE
space typically range from $1.50 to $5.00 per square foot.
- Industrial RE Is Flexible: Industrial properties come in a variety of shapes and sizes: there
can be warehouse with little office, or space that’s heavy on office with some warehouse for
distribution, warehouse area can be converted into biotech space or a baking facility… and so on.
Given proper zoning, industrial real estate allows for far greater flexibility in accommodating
tenants’ needs than other commercial property types.
- Industrial RE Supply Is Shrinking: Across the country, we are seeing an urbanization
renaissance. Dilapidated industrial buildings are being turned into hip night clubs, chic lofts,
apartments and “collaborative space” offices. At the same time, very little new industrial
construction is occurring in the urban and suburban areas. As former industrial areas are being
rezoned, there is less room for suppliers and distributors to access and store their inventories.
From an investor’s supply/demand perspective, this means that industrial should only become
more valuable in these areas as businesses long to be closer to the cities they supply.
- High Replacement Cost / Barriers-To-Entry: Which brings us to the primary expense driver
of new industrial projects: the high cost of acquiring and entitling land. While industrial
properties are typically single-story and not necessarily expensive to build, they do require far
larger sites of land as opposed to vertical projects such as office, multifamily and hospitality. And
frankly, developing new industrial sites do not offer municipalities the same tax revenue
opportunities as retail, hospitality, housing or high-rise office. Thus, increasing demand for
industrial space and the high cost of building new projects drive rent increases for existing
projects, which creates opportunity for upside in existing properties today, especially those
acquired below replacement cost.
- Changing Nature of US Employment Market: Today, 40% to 50% of all job growth in the
country is driven by businesses with fewer than 50 employees, and this trend is expected to
increase over the foreseeable future. These businesses primarily occupy multi-tenant industrial
projects and business parks.
- Growth of Internet Retail: E-commerce (product warehousing) now drives 30% to 40% of
the industrial real estate business. As one of the fastest growing segments of the economy, ecommerce
is expected to account for one-third of all retail sales in just 15 years; and shift more
and more space from expensive brick and mortar retail stores to Industrial RE – primarily
warehouses and e-commerce fulfillment centers.
- The Coming Revolution in 3D Printing: Forbes Magazine, The Economist and other leading
business publications are calling 3D Printing “The Next Industrial Revolution.” Because most
practical applications will extend beyond “home-use,” the explosive growth in this industry over
the next 10-years will house itself primarily in Industrial RE.
- Home Building; Expansion of Oil & Gas; Infrastructure Construction: Industrial space is
the primary beneficiary of expanded activities in new residential/commercial construction, the
oil and gas industry, and renovation of the nation’s aging infrastructure of roads, bridges and
utilities as firms engaged in the building trades gear-up for new projects. Specifically, we target
Industrial RE projects in regional markets exhibiting these strong economic drivers.
Avistone, LLC, is a real estate investment firm specializing in the purchase of multi-tenant
industrial / business park properties and creating alternative investments for individual investors
seeking high current yield, strong returns and the optimization of risk. We target individual
properties that have the potential of providing our clients with 8.0%+ cash-on-cash yields, 14%
to 22% annualized returns (IRRs) over 5-year holding periods, and can be purchased at a
substantial discount to replacement cost.