Investor Uncovers Big Business in Small Spaces

By Jennifer Robison

There’s big business in small spaces.

That’s the principle behind an investor’s move into the Las Vegas Valley’s industrial market.

Since mid-2014, BKM Capital Partners of Irvine, Calif., has built up occupancies inside local multitenant industrial parks that struggled to stay full in the recession. In about a year, BKM has improved occupancy rates in its 534,000-square-foot portfolio here from 55 percent to 95 percent by focusing on businesses that need as little as 1,500 square feet of space.

“Some of these companies might have been working in their garage or sharing space in the downturn, but now, their business is growing, and they feel good about taking on a lease obligation again,” said Matt Stephenson, BKM’s director of asset management. It’s an unusual strategy in a market gripped by speculative, big-box fever, but it’s a smart approach that takes advantage of where much of the city’s economic growth is today, observers said.

“A lot of companies almost shut down in the recession, and now they’re growing a little bit,” said John Restrepo, an economist with RCG Consulting in Las Vegas. “This is a great option for them.” Stephenson said it’s also well-suited to the multitenant industrial sector, which might have as many as 80 users in one project in spaces no bigger than 30,000 square feet. That’s in contrast to big boxes, which often have a single tenant in 200,000 square feet or more. While regional and national developers and institutional investors trade in big boxes, it’s mostly inexperienced, individual owners that dominate multitenant developments, Stephenson said.

“Generally, we buy from folks who don’t operate well, or who are not super-sophisticated and don’t really have their eye on the ball,” he said. “That’s where we see opportunity, more in mom-and-pop-owned properties, or in buildings owned by partnerships with capital constraints, or partnerships in which this isn’t their primary business.”

When BKM finds the right property, it turns it around with lightning-quick tenant improvements and lease execution. If a potential user wants upgraded air-conditioning, fresh paint, new carpet or fewer walls, BKM doesn’t quibble. It makes the improvements itself.

“Some landlords will want the tenant to spend those (improvement) dollars,” Stephenson said. “We want to make it as easy as possible for people to move in. If someone needs to occupy space in a month, they want answers quickly. We can answer questions, make a deal and do a lease in a day.”

That hustle has paid dividends.

Occupancy inside BKM’s 223,009-square-foot Patrick Commerce Center has soared from 55 percent to 86 percent. Inside the 172,329-square-foot Cheyenne Technology Center at 3355-3675 W. Cheyenne Ave., occupancy has gone from 79 percent to 92 percent. And at the 137,715-square-foot Windriver Industrial Complex at 4301 S. Valley View Blvd., occupancy has jumped from 71 percent to 95 percent.

In all, BKM has completed roughly 30 local leases worth well over $6 million. It’s improved its property values as well. One example: BKM bought Patrick Commerce Center for $68 per square foot, and said it’s worth more than$100 per square foot today.

Some of leasing boom comes from broader market gains. Overall industrial vacancy was 6.2 percent in the second quarter, down from 9.7 percent in the same period of 2014, according to Restrepo.

Market trends can “always help or hurt,” Stephenson said he believes BKM’s success has come from “response times.”

“You need to be nimble and well-capitalized, and you need to answer people quickly. There are other spaces tenants can go to, and you need to be fair and reasonable and make the process easy.”

BKM isn’t done with the local market.

It bought its three local properties for a total of $45.9 million as part of a fund that also bought industrial parks in Phoenix and Portland. It’s raising another $200 million to $300 million to buy additional complexes across the West.

“This product type is our sole focus. We look at it as kind of like the student-housing and self-storage businesses of a decade ago, where there’s been very fragmented ownership,” Stephenson said. “We see a real opportunity to institutionalize this asset class. We want to be the premier owner and operator of this niche, and Las Vegas is a very active market for us.”

Contact Jennifer Robison at jrobison@reviewjournal.com. Find @_JRobison on Twitter.