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  • Commercial Real Estate Direct Staff Report

BKM Capital's Second Industrial Fund Targets Last-Mile Properties in Western U.S.

BKM Capital Partners has raised $289.4 million of equity commitments for its second industrial fund, which targets last-mile distribution buildings in the Western United States.

The Newport Beach, Calif., investment manager also lined up an additional $92.1 million of co-investments for the fund, BKM Industrial Value Fund II. Its first investment vheicle closed three years ago and raised $105 million, plus $25 million of co-investments.

The second fund, like its predecessor, targets multi-tenant, light-industrial properties in Arizona, California, Colorado, Nevada, Oregon and Washington that require renovations and are close to retailers and homes. It already is about 48 percent invested and has bought 21 properties with 3.4 million square feet for $554 million. It also has two properties in the Seattle area under contract. Those deals are set to close by the end of next month.

BKM hopes to deploy the rest of the fund's capital by the end of the year. It expects to buy up to $1.2 billion of properties through Fund II.

The company has fully invested the first fund, paying $380 million for 18 properties with 2.5 million square feet. Both funds have five-year hold periods, plus two, one-year options.

BKM was founded in 2013 by Brian Malliet and Nima Taghavi. Malliet previously was chief investment officer of Voit Real Estate Services, an Anaheim, Calif., brokerage, while Taghavi is a longtime real estate investor who has known Malliet since 2003, when Malliet founded BKM Development, a Southern California development company.

The company has always focused on properties that are 100,000 to 250,000 sf, which is small for industrial buildings, and those that have at least 20 tenants that lease an average of 5,000 sf. It has had an easier time raising capital in recent years because those properties are crucial to companies that offer next-day shipping and need space close to where customers live.

For instance, it lined up 20 institutional investors, including pension funds, insurance companies, private-equity firms and foreign investors, for its latest fund. That compares to just two for its first vehicle.

Also, most funds tend to focus on larger industrial properties.

"The light-industrial space we operate in doesn't exist with a lot of groups like us," Malliet said. "There's a lot of interest for people to get into a new sector. The small space is a big need and the last component to get to the consumer."

BKM's most recent investment occurred in February when it paid $24.3 million, or nearly $120/sf, for the 202,231-sf Valley Business Center in Denver. Tenants at the property include FedEx Kinkos, Colorado Lottery, Black & Decker and Municipal Energy Systems.

Besides Denver, its other target markets include Las Vegas, Los Angeles, Phoenix, Sacramento, Calif., San Diego and Seattle.

The company typically pays $15 million to $20 million for individual properties and $35 million to $65 million for portfolios. It obtains mortgages for up to 65 percent of the properties' value and invests an additional 10 percent of the purchase price on renovations.

"Everything we buy is somewhat broken," Malliet said. "It's either not being operated by the right operator and they're not doing a good job keeping it up and leasing it, or the property needs heavy capital improvements. Every property we buy, we re-furbish it and re-brand it and announce it back to the marketplace."

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