UL Interviews Rob Sistek: One Fund Sees Opportunity in Smaller to Mid-Sized Industrial Properties
May 17, 2022 - While much of the focus on U.S. industrial is on large, single-tenant facilities, with big names like Amazon taking whole facilities. But multi-tenant industrial may offer diversification and risk reduction while helping small manufacturing firms grow over time.
Robert Sistek, senior managing director at BKM Capital Partners, spoke with Urban Land about his firm’s unique approach to light industrial and multi-tenant business parks in the western United States. Since BKM was formed in 2013, the firm has acquired over $2.5 billion of light industrial properties and currently has approximately $1.7 billion in assets under management.
How big were Funds I and II?
Fund I was about $105 million of equity commitments into the fund and another $25 million of coinvest. So total invested capital of $130 million.
It was the company’s first fund and Brian Malliet, the founder of BKM Capital Partners, had been a developer and exclusively focused on this property type for 30 years and then said, “I’ve got this great concept [for establishing a platform that can bring institutional capabilities to managing multi-tenant light industrial business parks].” Brian established BKM Capital Partners and about one year later raised the fund, which is not easy to do. BKM Industrial Value Fund II was launched in 2018, and raised just shy of $290 million, plus about $60 million of coinvest. So, roughly $350 million total equity committed in Fund II.
With such a shortage of industrial product right now, are you seeking value add or is that what everyone seems to be doing?
There are a lot of new entrants into industrial broadly. Bulk distribution—what you think of as the large Amazon distribution center—has been so bid up and with good reason, as the fundamentals are extremely strong. However, the increased competition makes it difficult to generate decent value-add returns for investors.
If you think about big box or bulk distribution properties being 500,000 square foot (46,451.5 sq m) buildings or warehouses and above, and then mid-bay, which is 200,000 to 500,000 square feet (18,580.6-46,451.5 sq m) buildings, with usually one to four tenants. We focus on multi-tenant light industrial with an emphasis on small-bay buildings, which are generally inside of 200,000 feet (18,580.6 sq m) with a lot of small tenants—it is much more asset management intensive.
Historically, institutional investors have shied away from that side of the spectrum. But there is a tremendous amount of demand, and virtually no new supply in small-bay space. There is a significant supply-and-demand imbalance. We are seeing tremendous rent growth [that is] even more outsized for the small bay space.
[Small bay] is very expensive to build—If you think about a large warehouse, … It’s concrete tilt-up, a roof, very little office, dock high loading, and a nice big truck court. With small bay, you have got demising walls, separate restrooms, metered electricity, and other characteristics necessary for multiple, distinct units. With construction costs where they are today, it is very expensive to build … there is about 600 million square feet (55.74 million sq m) under construction in the U.S. today; it is estimated that less than three percent of that is considered small bay to serve those smaller tenants.
Read the full interview here.