Industrial Property Value-Add Purchase - Looking for Advice
Myself and two friends are going to purchase an industrial property with the aim of adding value through basic upgrades and finding tenants for previously unleaded space. The plan is to purchase a building either partially leased or with no tenant, find tenant(s) for the remaining space, then sell the building. We have about $5M cash between us and some decent experience with finding tenants for these types of properties.

This will be our first “solo” deal. My question is: what should we prioritize when choosing a building? At this point I’m mainly looking at ‘80s-‘90s era concrete buildings 24+ ft clear height and as many dock doors as possible located in the local hubs (mainly Phoenix but also some in Tucson.)

Any information/insight is much appreciated. Thanks in advance!
[{"id": "i62ttam", "text": "We need more deets.", "replies": [{"id": "i62uojt", "text": "Sure thing. What would help? I was worried about posting a wall of text.\n\nIn general we are looking to invest our capital into an actively managed project with some prospect of a short-term gain (&lt;2yr timeline). We have some general industry knowledge and one member with connections in the area which should help with tenant placement.\n\nGenerally looking at over 25k sqft tilt-up buildings that are in decent structural shape but could use some attention to bring them up-to-date or make them more functionally appealing.", "replies": [{"id": "i63gxr9", "text": "Is there a particular niche you are targeting when you say \u201cmake them more appealing\u201d\n\nMake them more appealing to who? I\u2019m in commercial so this is the reason why I ask! The only way to make it more appealing to \u2018everyone\u2019 is to gut it, make it clean, and allow for tenant improvement for whoever the tenant is. To say that you are making it more appealing without adding context is the part that gets me confused/curious.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i62v7pd", "text": "What is your value add? Paint and some lighting probably won\u2019t cut it. \n\nFollow up, what upgrades will you do that the current owner can\u2019t do? There may well be something but I usually see the home runs on fully vacant and functionally obsolete buildings. \n\nMy friends have done things like zoning, adding dock doors, repaving and truck court layout for better flow. \n\nYou have a tenant rep guy you\u2019re working with?", "replies": [{"id": "i62vuil", "text": "Adding doors and repaving are well within our scope and good examples of what an ideal property might need. Other examples could be updating the office space or reconfiguring layout for multiple tenants/single tenant depending on current demand.\nOne of our team is essentially a tenant rep, so yes that would be a big part of the value add.", "replies": [{"id": "i64ikqq", "text": "Yeah so you have all the elements. Just gotta pull that trigger! \n\nWhat do you want from Reddit? \ud83d\ude02", "replies": [{"id": "i657s9g", "text": "Haha thanks. Just looking for a sanity check. This is our first solo deal so I want to make sure I don\u2019t miss anything. I do see a lot of posts about boom/bust and upcoming recession, but I have a hard time sitting on my hands waiting for something to happen.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "i65i5tc", "text": "&gt;What is your value add? Paint and some lighting probably won\u2019t cut it.  \n&gt;  \n&gt;Follow up, **what upgrades will you do that the current owner can\u2019t do**? \n\nExactly!  Value-Add is such an internet scam on novices.  Geez, if only the seller had thought of spending $10 to get $100!", "replies": [{"id": "i666pvq", "text": "Of course you can't take the broker's word for it. But there are properties where an investment of time and money will lead to an overall profit.", "replies": [{"id": "i668lwt", "text": "&gt; But there are properties where an investment of time and money will lead to an overall profit.\n\nYou're kidding?", "replies": [{"id": "i669ykx", "text": "I can't tell what's sarcasm and not these days. Anyway thanks for the input.", "replies": [{"id": "i6elee2", "text": "Basically they\u2019re being hypocritical by telling you on one hand there\u2019s no significant way you can add value because the owner would already have done it. Then in the other hand the above sarcastic comment. \n\nBeing sarcastic dicks for the sake of it. Ignore.", "replies": [{"id": "i6er1ml", "text": "That\u2019s what it felt like! Thanks and have a good one.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}, {"id": "i6elh5d", "text": "So which is it. Is it impossible for him to add value or not? Or are you just being a hyper critical sick?", "replies": [{"id": "i6g0db1", "text": "&gt; are you just being a hyper critical sick?\n\nYeah, prolly that!  Sure it is possible to \"value add\".  My point is that most owners will do what it takes to increase their profit.  They decided that there was no bang for their buck.  But the problem with novices is that they think they can upgrade a property at great expense and recoup their expenses when all they have is a nicer property in the same crappy location.  Did you have anything you wanted to share or are you just having a hormonal day?", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i62zm0k", "text": "It's really the rent that drives value, so any of the upgrades are super property dependent. Paint, striping, new asphalt reseal, confirming internet service are all cheap, but hard to say more without walking the property and class.", "replies": [{"id": "i631heb", "text": "Thanks. In our price range I'm generally looking at class B buildings that are fully vacant. Agreed that improvements are fully dependent on the property in question.", "replies": [{"id": "i632nkw", "text": "Good clean up, fresh paint (or at least touch up) and modernizing the lighting to LED will always show the property better. Having bad lighting from the 80's just is not the vibe. \n\n&amp;#x200B;\n\nImproving signage depending on property type/current sign can also have a decent ROI.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i632pxv", "text": "It's a bit off topic but I have a rv park development that the owners are looking to get out of. They are up there in age and one got diagnosed a few months back and he just wants to lessen the load. Numbers are pretty attractive and all the hard work with permits and designing are already done. If this something you might be interested in...", "replies": [], "depth": 1}, {"id": "i63gxbu", "text": "It sounds like a decent plan. Like you, we'd be focusing on being near any airports or other transportation/shipping hubs as well as off Major Highways. For Phoenix, the area along the 17 from Deer Valley to Anthem will get a glow from the massive Taiwan Semiconductor development. Also, the industrial section at the Chandler section of the 202 loop is another area we'd be prospecting for perhaps even with direct mail and contact campaigns. Of course, you'll also find older vintage industrial near the PHX airport.\n\nIn terms of your plan, however, if I were looking at the vintage you are targeting, I'd be making sure that we had as few deferred maintenance items as possible, especially since the industrial market is tight and pricing is heated in most markets. Keeping your cost basis down is key as you may not be able to get the same types of distressed yield as say, vacant office, all things considered.\n\nAlso, off point, but I'd keep in mind the timing of your plan. Have a backup for your two-year plan as if the Fed borks the economy you may be selling in a recession. Capital and the lending atmosphere may be very tight for your buyer. If you are using debt, watch out for floating-rate loans and expensive rate caps. It will be worth the brain damage to compare the PV of higher fixed-rate debt options against expensive rate caps and cap renewals on floaters in this environment. Good luck!", "replies": [], "depth": 1}, {"id": "i64ddw0", "text": "Make sure you get a cost segregation study on any commercial property that you own!!  You will literally accelerate Depreciation by hundreds of thousands of dollars or more.  Should you have any questions let me know", "replies": [{"id": "i659ace", "text": "Also to perhaps state the obvious, cost segs only make sense for long term holds or if you will be 1031 exchanging. Otherwise all you are doing is paying fees to accelerate depreciation that will produce artificially high gains for short term holds.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i64mw2h", "text": "What works for us is dividing them up into small units 1500-2500 square feet, and adding a fenced yard for each unit. We get about 15-20% above market and low vacancy.", "replies": [], "depth": 1}, {"id": "i64tz5t", "text": "Dude don\u2019t get into it now. A Titanic recession is staring us in the face. This is good to make 1986 look like a cake walk. Wait for the foreclosures.\nI saw $145,000.04 plexes selling for 45,000 in 1988.", "replies": [{"id": "i654o6z", "text": "I\u2019ve been seeing those predictions for almost two years though. You can\u2019t sit on the sidelines forever.", "replies": [{"id": "i66xqqd", "text": "It\u2019s not just the interest rate that are going to rise probably by four or 5% and that\u2019s the prime rate not what retail / commercial borrows pay\nIt\u2019s also the supply chain is a wreck and now they talk about agricultural shortages. It\u2019s going to be bad good luck to us all", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}]