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.
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.
you can check loopnet.com 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
Good luck. Much to study.
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 -
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......
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
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.
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?
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.
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?
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
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.
.... 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
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.