How to buy warehouse space as an investment

I keep hearing that commercial real estate is in bad shape. At the
same time, valuations of stocks are up 70% and I would like to
diversify my investments a little bit, as I am mostly invested in
I would like to try to buy a warehouse and just rent it out
forever. Preferably something with several bays, that I can
subdivide. This would not be a purchase for a quick flip.
I was trying to find out some basic things, like rents per square
foot, prices per square foot, see listings of what is available, etc.
When I just do web searches on this stuff, I come up with so little,
as if information on this was classified.
I am in Chicagoland and would be interested if someone can get me
started with some useful pointers or experiences.
As a hobby, I like to buy and sell surplus qeuipment from bankrupt
factories, so buying a warehouse, hopefully at a distressed price,
would be along similar lines of experience.
Reply to
Igor Chudov
Congratulations on exploring a kind of investment I suspect a lot of people don't know about. I had no clue such an investment possibility even existed. IMHO it would be valuable to readers of this newsgroup if you tell us more about it as you get more information.
Reply to
you can check for some listings, but my experience is that many commercial Real Estate Brokers keep their listings close to the vest, in order to handle both sides of the transaction and collect all the commissions without sharing.
You should connect with a couple commercial R.E. Brokers and have them show you what they have, and get Operating Income statements, etc. You should do a lot of research and educating before dipping your toe in the water.
There are many R.E. investors that want to buy ad hold, and just "rent it out forever". Of course, if you look around, you will see lots of vacancies. Filling vacancies takes time, leasing commissions, and often cash up front for "tenant improvements". Often these T.I.'s can take the form of free rent at the outset of a lease term, rather than cash out of your pocket.
Good luck. Much to study.
Reply to
Yeah - we had the same idea years ago, and things were ok until the financial world imploded.
As was mentioned - this info is readily available -
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There is a lot of vacant commercial real estate right now. It is VERY different than renting out a condo, office, or house.
You WILL have building codes to deal with, along with potential FORCED improvements to the property..
ie - We have a warehouse building in Addison, for storing machinery, and are being forced to add overhead sprinklers + ADA bathrooms. Costing $100,000 - with NO real benefit to us...
Other issues might be the type of equipment you are allowed to store, how high the shelve/racking can be (based upon what is being racked), automobile storage for winter - may need special floor & special drains
The list from the village building inspectors goes on and on......
Reply to
I am thinking, snice the world imploded, now would be a safer time to buy since things are priced better.
ps56k... Addison, or Lombard would be ideal locations for me. So I hope, greatly, you do not mind if I ask you a couple of questions. What would be a typical price to pay per square foot for a small (4k sq ft) warehouse, 14-16 ft ceiling, on a small (say 1/3 acre) amount of land, zoned industrial. The price assumes that I try hard to get a good deal.
And what are typical rents that I could easily get, without a yearlong search for the highest paying tenant.
I want to understand the economics of this a little bit.
Also, if such a building is unoccupied due to lack of tenants, how much would my fixed costs run.
Would it be possible, currently, to finance 40-50% of my purchase price, with the rest paid in cash.
I am just trying to get a feel for this.
I personally live in Lisle.
Are they basically honest or are they looking for some form of bribe, how does it work here? I assume the former, but wanted to double check.
Reply to
Igor Chudov
Igor Chudov writes:
You can get exposure to this asset class and avoid all the headaches of being a manager and dealing with compliance by buying an industrial REIT. If you only need some storage space for yourself, buy shares in a REIT and rent some space on your own independently.
Owning and operating rental property is a job. On the smallest scale, like renting out an apartment or a house, it may be a minor part-time job. But once you get into larger scales of industrial space, it's a bigger job.
And the transaction costs can be brutal. Are you absolutely sure you want to do this?
As far as the timing of the opportunity to buy, take a look at the stock charts of some of the REITs. They fell off a cliff, as one would have expected, about 18 months ago and have not come back nearly as strong as many other parts of the market, so there may yet be buying opportunities.
Here are a few worth looking at. Note that I'm not recommending any of these in particular - this is just a point of information:
These are mainly warehouses: ProLogis Trust (PLD) AMB Property Corporation (AMB) First Industrial Realty Trust (FR)
These ones are a mix of warehouses and office space: Liberty Property Trust (LRY) Duke Realty (DRE)
Morningstar puts all of those at either fairly valued or slightly overvalued right now, at least based on their models and projections. They've all got yields in the 4-5.5% range, but a *lot* of uncertainty.
You might find the annual reports of some of those REITs to be interesting and educational. (Just guessing - I don't own any of them and haven't read their reports.)
You still need to heat (at least to make sure that pipes don't freeze), you still need insurance, and you may actually have to have some kind of security as well. Insurance companies do not like to insure unoccupied property. And, of course, that's all on top of your mortgage and tax payments. And when you do sign up tenants, you may have to build or customize to suit them, too.
Reply to
People here have mentioned a lot of negatives about investing in warehouses, but that makes me wonder: There are a lot of warehouses out there, and a lot of people own them. Why are all the investors who own them now doing so, and what are they trying to accomplish?
Reply to
Ask what you should be concerned about if you invest in stocks, bonds, diamonds, fine art or almost anything else and you will get an equivalent list. The only investment that comes close to being risk free is a security backed by the full faith and credit of the U.S. government.
Reply to
Yes, to be sure, risk and reward go together. If someone tells you that you can get 25% yield from a financial product, it means one of two things: It is a scam or it is a very risky investment.
Since warehouses are useful structures and are obviously owned by somebody, it is probably not a scam. Can one infer that it is a high-yield investment with possible superior reward along with the risk?
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I agree that any sort of promotional activity that promises above average rewards, should arouse suspicions.
I believe in something controversial, which is that 1) risk comes from now knowing what one is doing and 2) that automatically assuming that risk is related to reward, could get one into a lot of trouble.
When I think about risk, I try to get down to the specifics of what is a risk of any particular investment.
As applies to warehouses, the risks I see are
1) Hidden liabilities, forced improvements etc 2) Risk of overpaying and thus not getting one's money worth 3) Risk of economic downturn and lack of tenants. 4) Risk of tripping up on excessive leverage.
Numbers 2 and 3 are related, and the best purchases that I made, were made in atmosphere of fear and general paralysis. This is so because "fearful" prices more than compensate for a few years of depressed profits.
I think that I generaly like industrial things, and so I would have a chance of securing a reasonable deal and then following up by being a proactive owner.
I may discover that prices and yields are not where I am hoping to find them, and thus I would abandon this pursuit.
Over the last 10 years, my stock returns were approximately 10% and I started off in a very investor unfriendly environment of high stock valuations. Right now stock valuations are muh more attractive to a long term owner. What this implies, is that I would be reluctant to accept less than 8-10% returns from owning a warehouse.
Reply to
Igor Chudov
.... Good advice snipped...
Bread, on the one hand, you have a lot of great points. Stocks and shares of REITs are easy to own. The only hassle is having to read a lot and doing some work at tax time.
On the other hand, with REITs, I do not know what they own, I have to pay for layers of management, I do not get to negotiate a good purchase price, etc. Plus, with any sort of property that I own, I always get some opportunities for creative tax deductions.
I will explore this direction of owning commercial space, to some extent. I could, say, buy a $400k property if I can finance $150k. This would be, of course, only if prospective returns are decent.
A possibility would be to buy building and assets of a bankrupt factory from a bank, sell off the equipment on ebay, and recoup some costs from equipment sales. I know how to sell industrial stuff.
I will see how it goes and will try to be mindful of a possibility of getting myself into some business morass, trouble that just keeps on coming and never ends.
Reply to
Igor Chudov
on 3/28/10 9:10 PM Igor Chudov said the following:
Call brokers for for-lease buildings and ask what the going rate is? Propose a deal?
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