Underwriting Industrial Deals
What do you guys look for when buying an industrial deal? I come from an office background and I'm trying to get an understanding of Industrial.

What attracts you?
What turns you off?
What type of returns/exit strategies do you see?
What metrics do you use for underwriting?

Thanks!
[{"id": "fhc734p", "text": "Soils report. Jesus help you if you find out you've gotten yourself into a superfund site.", "replies": [{"id": "fhcayvk", "text": "Second. Phase 1 at a bare, bare minimum. If any indication of waste, phase 2.\n\nGood freeway access, proximity to air or other ports, credit of tenant, and convertibility of the space. If it is too specifically built for the current tenant, then the space will cost way too much in TIs to release the space.", "replies": [{"id": "fhcc6us", "text": "Nobody will finance it w/o a phase I anyway", "replies": [{"id": "fhccc30", "text": "Right, I was keeping it high level since it seems like OP was looking for some high level guidance.", "replies": [{"id": "fhdcljx", "text": "black oozy dirt bad", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fhc74fy", "text": "Similar to other commercial investments, strong national credit tenant (but not always- have seen small regional tenants sell for absurd prices in a small market- because industrial is hot), heavy focus on good location near major freeways that lead to heavily-populated urban or suburban areas. Common exit is 5-7 years from what I have seen.", "replies": [], "depth": 1}, {"id": "fhc8rkg", "text": "Clear height and proximity to arterials", "replies": [], "depth": 1}, {"id": "fhcajhr", "text": "Age of the roof. Usually biggest capex expense.", "replies": [], "depth": 1}, {"id": "fhcb88h", "text": "Step 1: get an industrial expert in that local market.  Preferably an SIOR\n\nStep 2: listen to them", "replies": [{"id": "fhe9si3", "text": "Should also listen to other people....would be foolish to just eat up everything that expert says...", "replies": [], "depth": 2}], "depth": 1}, {"id": "fhcdqso", "text": "20' eave height (16' racks are popular)\n\nLoading docks\n\nSemi-truck access\n\nProximity to interstate\n\nConditioned warehouse space", "replies": [{"id": "fhe9q1d", "text": "- Can you explain your first line - what are eaves and racks?\n\n- What is a good amount of loading docks?", "replies": [{"id": "fhfg26l", "text": "The eave is the height of the lowest part of the roof at the edge where the gutters are, this allows 16' commercial racking systems to be installed all the way against the sidewall of the building to maximize space and still allow a forklift to access the top rack.\n\n&amp;#x200B;\n\nThe amount of loading docks would be dependent on the prospective tenant but one at a minumum for an (light) industrial tenant.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fhco9et", "text": "A solid industrial building investment would be one that has versatility. One that can be demised, for multiple uses and or tenants. Think beyond the current use and tenants. Some \"modern\" industrial buildings being used today where built in the 1960's. An industrial buildings useful life is unlike many other forms of commercial real estate, it can be used in its same form unimproved for 50 years or more if it has the next items...\n\nA ceiling clearance that's high for the marketplace i.e. 24', 28', 32' clear, etc., the higher the better.\n\nAdequate loading, preferably dock high for its versatility. \n\nIn addition to location the two items above should be considered the two primary and most important improvements. There are many other building features that can be considered important but they can typically be added where as the two above are atypically cannot.\n\nReturns are based on a combination of beta (credit strength + market size and indicators). Metro market returns are different than secondary market returns and drastically different that tertiary market returns.", "replies": [], "depth": 1}, {"id": "fhd2wjd", "text": "Start with understanding different types of industrial - warehouse, R&amp;D, showroom, manufacturing, flex. Each type has their specific attributes that others have mentioned such as ceiling heights, dock doors, truck court depth, type of loading, access.\n\nAs for underwriting - length of term, rents (market vs in-place), and understanding capital costs for new tenants (TI, leasing commissions, capital reserves). Roof is most expense capital costs so need to know if has to be replaced or can just do an overlay.", "replies": [{"id": "fhe9m0e", "text": "Thank you for the response. What does the typical TI package look like? I've heard some people say as high as $50/sf and others as low as $12/sf.\n\nWhat is average ceiling height vs above average?", "replies": [{"id": "fhelco5", "text": "Answer to both is depends (existing condition of space, location, etc.) but generally speaking, TI will be nothing close to what you\u2019re quoting because you\u2019re working with larger SF tenants for industrial. So, you\u2019re around $5 PSF but that can be lot if it\u2019s a 20,000+ sf tenant.\n\nEven for infill you don\u2019t want ceiling heights under 18\u2019. Distribution tenants want over 32\u2019+ for racking systems.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fhem24o", "text": "it sounds obvious but make sure you really understand how loading will work on the property for typical users.  I had a property one time that you had to go under one of two bridges to get to which were limiting factors.  Shit like that you need to notice because its not always obvious.  For more urban sites too you run into some weird access issues with drive ins that can't be dug out and other things like that too (or backing larger shipments to docks).\n\nIf it isn't obvious that there is like a huge truck yard and cross docks or something ask how they take semis and if it involves some convulated shit like \"they pull up here then back down 200' down the side of the building\" or they use external forklifts you should be seeing big red flags", "replies": [], "depth": 1}]