The FORT Podcast: Why Fort Capital Buys Class B Industrial
On today’s episode, Chris breaks down why Fort Capital has spent so much time and energy in the Class B Industrial space over the past 4+ years. He lists the four most important reasons for pursuing Class B Industrial as well as why he believes this asset class has a promising future. Enjoy!
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(01:09) – Episode Agenda
(01:40) – The “ah-ha” Moment in 2016 and 4 Big Ideas
(02:07) – Idea 1: Do we think online sales will increase or decrease?
(02:49) – Idea 2: Class B Industrial is Infill in Nature
(03:29) – Idea 3: How Travis Kalanick, Founder of Uber, Goes on to Found Cloud Kitchens Using Industrial Space
(05:16) – Idea 4: The Depleting Supply Class and Growing Tenant Base
(10:21) – Why Class B Industrial is Sticky
(12:02) – The Cannabis Opportunity for Class B Industrial
(13:00) – The Historical Ownership of Class B Industrial & Flying Under the Institutional Radar
(14:25) – Class B Industrial Has a Predictable CapEx
(16:16) – Management in Class B Industrial
(17:16) – The Value Add and Their Un-Sexiness
(18:13) – The Wrap Up
(19:36) – Call Out to Owners & Brokers Looking to Chat/Sell Industrial
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Episode Summary
Class B industrial properties, often overshadowed by their Class A counterparts, are steadily gaining traction, primarily due to their strategic advantages. One of the standout attributes of these properties is their enticing ROI potential. With a relatively lower initial investment threshold, these properties present an attractive proposition for both seasoned investors and newcomers to the industrial real estate realm. Moreover, their appeal isn’t limited to just the investment side; a wide array of tenants find Class B properties aligning perfectly with their operational needs.
Location plays a pivotal role in enhancing the value proposition of Class B properties. Their proximity to urban centers and major transit routes not only ensures consistent demand but also positions them uniquely to cater to the requirements of a diverse tenant base. However, as Powers rightly points out, the very strengths of Class B properties can also pose challenges. Retrofitting older properties to resonate with modern demands requires foresight and proactive management. Anticipating potential issues and addressing them head-on is crucial to fully harness the potential of these properties.
The market dynamics surrounding Class B properties are evolving at a rapid pace. The increasing interest from institutional investors is reshaping the competitive landscape. While this underscores the long-term prospects of Class B properties, it also necessitates staying ahead of the curve, adapting to changing market conditions, and differentiating oneself from the competition.
As with most sectors today, technology’s imprint on Class B properties is profound. The integration of advanced systems, ranging from warehouse management solutions to IoT implementations, is revolutionizing operations. Beyond mere tech adoption, the emphasis is on harnessing technology to optimize processes, enhance efficiency, and elevate tenant satisfaction.
Sustainability, once a peripheral consideration, is now at the forefront of Class B property development. Powers underscores the growing emphasis on green initiatives and sustainable practices. The dual benefits are hard to ignore: while such initiatives contribute to environmental conservation, they also play a significant role in enhancing property valuation, appealing to a broader spectrum of environmentally-conscious tenants.
At the core of Class B properties’ success lies robust tenant relationships. Understanding and adapting to the evolving expectations of tenants is paramount. As Powers emphasizes, fostering long-term relationships, underpinned by open communication, flexibility, and a deep understanding of tenant needs, is crucial for sustained success.
Looking ahead, the future trajectory of Class B industrial real estate is promising. However, it’s not without its set of challenges. Adaptability, a deep understanding of market shifts, and the ability to anticipate future trends will be the hallmarks of success in this segment.