OUR INVESTMENT STRATEGY
Niche Asset Class, Unique Opportunity
Cabot Business Park
NICHE ASSET CLASS
We acquire and actively manage light industrial, multi-tenant business parks in the western United States, a niche asset class that offers the following advantage over other real estate products:
Large tenant bases and short lease terms smooth properties’ rent rollover profiles and consequently net operating incomes
Tenants for business parks come from many different industries, limiting property owners’ exposure to secular downturns in any one vertical
Faster lease turnover means quicker value capture in rising markets
Simple concrete tilt-up construction styles and universal layouts lead to lower tenant improvement costs and capital expenditures
These attributes combine to mitigate risks and allow expert owner/operators multiple value-creation levers even in uncertain economic environments.
Additionally, a large proportion of these assets sit squarely in the middle market. Our target transaction size of $10 million to $25 million tends to be too large for individual investors and too small for institutional investors, limiting the scope and intensity of competition for deals.
With current pricing for these assets well below market peak and rents on an upswing, fundamentals for multi-tenant business parks indicate favorably toward substantial growth in the near- and medium-term future.
We acquire, adaptively reposition, and actively manage industrial, warehouse, and flex multi-tenant business parks.
DIVERSIFIED TENANT BASE
Multi-tenant business parks tend to attract small, entrepreneurial businesses from a wide range of industries. These businesses strongly prefer the short-term leases and inexpensive, flexible spaces offered by this asset class.
Because no single tenant occupies a majority of the square footage in a multi-tenant business park, the property’s rent rollover is more consistent than in traditional industrial properties housing only one or two tenants.
The diversified tenant base at a multi-tenant business park means:
Swifter adjustment for inflation and rent appreciation as leases come up for renewal more frequently.
Smoother rollover profile as an average of one-third of leases roll annually.
Far less concentration of industry risk as tenants tend to come from many different segments of the economy.
Multi-tenant business parks can also accommodate tenants as their businesses evolve. With staggered suite sizes, tenants can expand and contract within the same property at minimal cost to tenant and landlord, which often leads to higher tenant retention than other competing product types.
Multi-tenant business parks attract a diverse tenant base and have many attractive characteristics that mitigate risk.
Black Canyon Business Park
Multi-tenant business parks present many opportunities to add value and provide investment returns not dependent on market conditions.
Many buyers overlook these properties for factors that include:
Deferred maintenance issues
High vacancy rate
Poor market reputation
One of bkm’s core competencies is the ability to improve the operations of acquired properties. We actively seek assets considered “distressed” by the market.
Post-acquisition, we systematically address deleterious elements swiftly and decisively, making each target property more attractive to the leasing community in its local market. These changes result in increased occupancy rates, justification for higher rents, and ultimately, improved exit value.
Our ability to systematically improve operations of our acquired properties gives us an advantage over many other prospective buyers.
Patrick Commerce Center
DECREASING SUPPLY INCREASING DEMAND
During the real estate boom, many multi-tenant business parks were torn down to make way for higher-value office or residential uses. Today, with land prices prohibitively expensive, new development that could expand available business park inventory remains distant on the horizon. Additionally, macroeconomic factors have produced very little new construction within this asset class in the past four years.
At the same time, demand for multi-tenant business parks has increased as entrepreneurial businesses gain momentum and readily obtain funding:
Banks have loosened lending standards for small business loans.
Recently created government programs are spurring small business investments.
Private sector funding has increased, particularly in our target markets.
As demand increases, overall supply is limited both by lack of new construction and also by geographical constraints in most of our target markets. This combination should lead to favorable trends for skilled owner-operators of multi-tenant industrial.
Demand for multi-tenant business parks has increased as entrepreneurial start-up businesses gain momentum.
DISTRESSED OWNERSHIP SITUATIONS
Following the recession, many multi-tenant business parks were left unattended by banks and borrowers. Some of these owners declined to complete necessary maintenance and improvements or address low occupancy rates.
Today, many of these properties remain orphaned by owners who lack the knowledge or skillset to operate them optimally. Such ownership situations often force sale processes in which achieving maximum price is not the primary objective. We are attuned to notice and act quickly upon such situations.