Hi, I'm Chad
and this video will be the first part in a series
about investing in industrial real estate.
I'm going to talk about the basics,
including the main categories,
the first set of important considerations
and key terms you'll want to know.
More specifically, I'll be addressing how loading doors
play a pivotal role in all industrial buildings
but stay tuned until the end to hear about
other factors that might limit their usefulness.
So let's jump into it!
I'll first dispel the notion that industrial real estate
is only obtainable for wealthy or sophisticated investors.
Instead, I would describe industrial real estate
as an asset class that falls on a full, wide spectrum.
At the far end of the spectrum are the large projects
and developments which can certainly give the illusion
of it being a daunting arena to play in.
Consider the sale in 2019 when Blackstone purchased
a massive portfolio of properties for $18.7 billion.
That transaction comprised 179 million square feet
of industrial space and is one of the largest private real estate transactions in history.
When deals like that make the news it gives the impression
of industrial real estate being unobtainable for the average investor.
But deals like that are on the far end
and on the other end of the spectrum are small industrial properties
which can cost less than the average house.
And what's fascinating about the industry
is that a lot of the fundamentals that exist in a 1 million square foot building
can also be found in a 1,000 square foot industrial condominium.
So industrial real estate can be a viable option for investors
with several billions of dollars in their portfolio and for those just starting out.
For the latter group, the first step is getting a solid overview of the industry.
Before we get more in-depth, it's important to recognize that industrial real estate
is actually a fairly broad category which can be divided into sub-categories.
Warehouse
These are buildings designed to store raw products or finished goods.
They can also be called distribution centers or fulfillment centers
but the intent of this particular type of property is that product comes in
is stored for some period of time
then gets shipped out.
Virtually every product you purchase has been in a
warehouse at some point in the supply chain
A Costco or Home Depot is essentially a warehouse too
they just happen to be in a retail area.
The principle is the same as a building tucked away in an industrial park
product comes in, it's stored until someone buys it, then it's taken out.
Manufacturing
These are buildings designed to accommodate manufacturing of
raw, semi-raw or finished goods.
Think of these buildings where raw or semi-raw materials come in
get assembled or manufactured, then get sent out.
Picture the Boeing Factory just outside of Seattle, which is not just the largest
industrial building in the world, it's actually the world's largest building period.
It's an elaborate facility, but we can simplify it.
Materials get delivered to the plant, which are then assembled into airplanes, which are then delivered to the end user.
It's the same basic concept whether the building is used to make airplanes
out of massive factory or widgets out of a small industrial condo.
Flex
This is sort of a catch all phrase for industrial properties which can serve numerous uses
Flex properties are not strictly warehousing or manufacturing
but instead cater to businesses outside of those traditional categories.
A flex property might work well for a lab space, an auto mechanic, or a showroom.
In addition to these three main categories
you might run across specialty industrial properties that were built for unique purposes
such as a bottle depot or self storage.
I did a video elaborating on these sub-categories in more detail, which I'll leave a link to up here.
Understanding the sub-category will also help you understand what type of tenant will ultimately occupy the building.
And who the building leases to is really the cornerstone of real estate investing.
The real estate is a hard asset, but its value is derived from its ability to generate rental income.
And the reason industrial real estate can cover the full spectrum of prices
is that there are an endless amount of companies that need space for their operations.
You might find a small machine shop that only requires a couple thousand square feet
to operate a couple pieces of machinery.
Or think of all the small distributors that need a small amount of storage space.
There are many, many companies that fall into these categories
but you first need to understand what type of space they need, and what is important to them.
Going back to my earlier comment
a critical process of industrial real estate involves things coming in and going out of the building
so there are three elements I would focus on first
1. The loading doors;
2. The loading area;
3. access to the property.
So let's start with the loading doors.
You might see the occasional building with sliding doors
but the vast majority of industrial properties will have doors that open the same way an ordinary garage door would.
That's why the terms loading door and overhead door are often used interchangeably
There are two types of loading doors, you'll either see grade level or dock level.
Grade level allows vehicles to drive directly into the building, so you can also think of these as ground or floor level doors as well.
Dock doors, on the other hand, allow trucks to back up to the building to load and unload where the floor of the building
is roughly at the same height as the bed of the truck.
As you can appreciate, different companies will have different requirements depending on what their primary business is.
Most distribution companies will want dock doors as their business revolves around
tractor trailers dropping off and picking up product.
A manufacturing company, conversely, will require the ability to drive larger pieces
of equipment and material in, so they will want grade level doors.
There's an endless combination of scenarios, some buildings might have a single overhead
door, whereas others can have dozens, or even hundreds of them.
Some buildings will have both grade and dock doors
while the size of the door can also play a big factor.
The most common size of grade level doors that I see are 12' wide and either 14 to 16 feet high
but in some cases you'll see oversized doors as well.
As you can appreciate, a company like Boeing would need a fairly large door to get a 747 in and out of.
And just like Boeing, every company will have their own specific needs.
Some manufacturers will want to have drive-thru access
which means a vehicle can pull in from the front and exit at the other side of the building.
There is a similar type of concept in distribution centers called cross docking.
The premise with cross docking is that items come in one side of the building
which are then sorted or re-packaged and sent out another door.
There are a few additional components to doors that can have huge benefits as well.
For example it's common to have these doors be manually operated
but an easy upgrade is to have them mechanically powered instead.
For dock loading, one handy feature is called a dock leveller
which is a mechanical lift designed to create a bridge between the truck and the warehouse.
These systems greatly increase the efficiency of loading and unloading items
particularly since not all trucks are at exact height as the floor.
While you may think of an overhead door as being purely functional, and by extension quite bland
there has been a rise in architectural designs for doors lately as well.
A modern glass or polycarbonate door adds a design flare
to the building and also serves as a source of additional light.
So by now you can probably appreciate how important overhead doors are
but they're only as useful as the access and loading area to the building itself.
It's seldom an issue with larger or modern buildings, but older, smaller buildings
can have narrow areas getting to the building which prevent larger vehicles from accessing it.
If a business requires large vehicles or tractor trailers to come and go
any building that does not have an adequate loading area or access will essentially be incompatible.
The area a truck driver has to approach a building is often referred
to as the apron space or marshalling area.
and with modern truck and trailer rigs approaching 90', most modern buildings have a minimum
of 135' to allow for convenient access.
Any less than that will make it increasingly more difficult to access.
At a certain point, some buildings will simply be unable to allow for larger vehicles to access.
Now I have to clarify, not all businesses will require large vehicles to access the property
Some small properties will cater exclusively to businesses that only have small vehicles
or cube vans coming in and out, and there will never be a need for a large vehicle to access it.
To summarize, industrial buildings all share this one thing in common.
Things come in, those things are either stored or worked on, then those things go out.
Make sure you are vigilant when investigating how an industrial building handles those tasks.
In the next video I'll cover a number of other important considerations you'll want to take into account.
If things come in and things go out, what actually happens in the building is the next logical step in analyzing an industrial property.
So if you're interested in learning more, subscribe and turn on the notification bell so you don't miss any of my future videos.
And thanks for watching, have a great day!