Why Bigger Is Better: A Smart Take On Multi-Tenant Industrial Investing
Connect Media asked Brian Malliet, CEO and Co-Founder of Newport Beach, CA-based BKM Capital Partners, to dive into what is behind an investment strategy that hinges on multi-tenant industrial properties. Here’s his insights in our latest 3 CRE Q&A.
Q: Before we get into the bigger is better conversation, what is the overall appeal to investors with multi-tenant industrial versus a large box with just one major tenant?
A: Multi-tenant industrial properties typically offer more opportunities for value creation than single-tenant or big box industrial. Single-tenant industrial properties are often dominated by longer term leases, whereas multi-tenant industrial properties have shorter term leases and rent rolls that allow for rapid NOI growth.
In addition, the diversification of tenants in multi-tenant assets reduces revenue volatility. There is also more flexibility in terms of changes to tenant space in this product type. This flexibility results in increased resident retention, as well as lower tenant rollover costs.
Q: I understand that BKM Capital Partners has begun acquiring some of the largest multi-tenant properties on the West Coast. Why are you seeing this as a good strategy?
A: There are several benefits to our largest-in-market acquisition strategy.
First, with larger product, we are able to devise our units to match market demand. Based on the current focus on last-mile delivery, our multi-tenant industrial units are desired by companies seeking a few thousand square feet, and others seeking 10,000 or more.
Second, we are able to achieve valuable economies of scale through our in-house operating and management platform. As we improve and manage these large-scale assets alongside the others we own in each market, we are able to reduce costs and increase efficiencies, resulting in money that flows directly back to our investors.
Q: Can you provide some samples of the properties you are now acquiring?
A: We recently acquired a 14-building, 352,280-square-foot property within Bayside Business Park in Fremont, CA. We believe this asset is the largest of its kind in Northern California, and will be a major distribution hub for the entire market.
We also acquired a 670,900-square-foot, 13-building asset in Las Vegas. Its location, at the entry point into the Airport submarket and in close proximity to a substantial business area and residential population, makes this a once-in-a-decade opportunity.
These assets are both large, high-quality, logistically integrated assets in major markets, and serve as examples of our strategic plan to acquire “star” assets, allowing us to generate consistently strong returns for investors.