How to Invest in Industrial Real Estate (Part 1)

What is the difference between Warehouse, Distribution, Manufacturing, Flex Industrial, and Specialized Industrial? How do you assess a single tenant risk profile within industrial? What is a sale leaseback as an alternative form of financing? Neil Wahlgren answers a lot of our questions regarding this popular asset class. You can read the entire interview here: https://montecarlorei.com/how-to-invest-in-industrial-real-estate/ Can you elaborate on what each type of industrial properties are and what are the differences between them? 1. Warehouse distribution: this tends to be the most common. For example, that would be an Amazon distribution center. Those can range from a large, empty space, four walls, a roof, all the way to these extremely state of the art, modern, brand new Amazon distribution centers that have lasers, artificial intelligence, robot handlers with all the parcels coming and going. Ultimately, you are creating valuation and creating value through what's inside those four walls and a roof. That defines the warehouse distribution side. 2. Manufacturing: that tends to be a range. Everything from four walls, typically metal sided, oftentimes built from scratch for a particular operating company. These operating companies are typically core producers, they can make everything from widgets to industrial dryers, mixers, aerospace parts, and even commercial food, really anything that's made, oftentimes B2B, where you're creating large things with specialized equipment inside of them. Those are categorized as manufacturing space, some will be more agnostic, where you have just a core building, and sometimes five or 10 ton cranes on top. And on the other end of the spectrum, you can have some very specialized built to suit ones, oftentimes irregular shaped buildings. For example, the Boeing manufacturing plant outside of Seattle. You have a massive building that's unlike commercial or industrial real estate in the area. 3. Flex industrial: imagine an entire tenant area, each typically with truck bays, loading and unloading facilities, and those tend to be very flexible in that you have an outer shell of a building. And then the interior walls and the actual square footage of each tenant space is adjustable by the owner of the building to meet the needs of the tenants. Oftentimes, tenants will grow and they want to knock down a wall, take some of the adjacent space, and oftentimes that industrial will be more of an even mix of office and warehouse space. 4. Specialized R&D industrial: that's kind of the catch all for everything else. It can be everything from laboratory space to really high tech, pharma type of real estate, or everything in between. The thing that I always worry about within industrial is most of them are single tenants, can you elaborate on how you or any investor should approach that when looking at a property? Absolutely. And you are right about that, the vast majority of industrial spaces tend to be single tenant occupied with the exception of those flex industrial. One really important thing to look at is, with a single tenant, you do have more or less a binary set of risks there. Either your tenant is in place, financially solvent, paying rent, or they’re not. And that gives a lot of investors pause. If that tenant declares bankruptcy or defaults on their lease, you can find yourself in a position where you still owe debt service. --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support