Knowing the basic differences in investing in industrial properties
such as office service, multi-tenant and/or large manufacturing
properties in the basis for making sound investment choices.
Office Service Properties
Investing
in office service properties is generally a profitable enterprise. A
typical office service would be a plumbing company. The standard office
service building is probably about 50,000 square feet with 15,000 of
that space used for the showroom to display commodes, bathtubs, and
faucets. However, they also have a huge inventory in the back, which is
where most of their business is conducted.
Freestanding, Multi-Tenant, and Large Manufacturing Properties
When
investing in industrial properties such as freestanding, multi-tenant,
and/or large manufacturing properties, remember that freestanding
buildings are usually larger and mostly single-tenant. In fact, the
single tenant is often the owner in this kind of property. You can group
freestanding, large manufacturing, and even multi-tenant buildings all
in the same category in the initial stages. However, experienced
commercial property investors and realtors would advise beginner
investors to stay away from this type of property. It's more of a
specialty-type property, meaning that you must really understand the
industry and the business.
To examine the issues of investing in
this market, consider the following example. Let's say you have the
opportunity to buy a multi-tenant building of 100,000 square feet both
for an investment AND for the headquarters of your own business. It
suits your business purposes and has space for two other tenants.
Tip:
The vast majority of the time in this market, even with just three
tenants, one of the tenants is the owner of the building. This is a
substantial building that's in the multi-million dollar range, but with
three tenants, basically it means that you have about 33,000 square feet
per tenant.
That may sound like enough room for everybody, but if
one tenant moved out, you just lost one-third of your revenue. It takes
quite a while to rent 33,000 square feet, particularly in a building
that usually has some kind of specialized function. You could be empty
for as much as a year or two- or more.
Now, you have to decide if
you can withstand that kind of deficit. If you are lucky, two-thirds of
the building will carry the mortgage and the other one-third is your
profit. So, it might be okay, but you will still barely break even for a
significant length of time, and no investor wants to do that. These
specialty areas are not good places for beginning investors, even if
they have another business that could use that space of 1/3 of the
building for themselves. In our opinion, it's risky. We advise you
invest in the areas where you won't get hurt and you know that you can
manage the risks.
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