Introduction to the Realm of Small Bay Industrial
In a recent episode of the Real Estate Espresso podcast, Anthony Scavo was welcomed by host Victor Menasce for an informative conversation on his journey in the industrial real estate development sector, with a focus on small bay industrial properties.
Anthony Scavo’s Real Estate Journey
Scavo’s real estate journey began when he was just 17 working for the Leverac Organization, one of the country’s largest family-owned real estate entities, where his father was also employed. This provided him with an early start and the opportunity to work in various facets of the real estate industry, honing his skills and knowledge over the years.
In 2021, Scavo joined Basis, a growth-oriented company that initially specialized in developing self-storage buildings across the nation. Over the past three years, the company has pivoted into purchasing and operating multi-tenant industrial facilities. They have acquired an impressive portfolio of over 4.5 million square feet of multi-tenant assets and are currently developing 2.5 million square feet of self-storage facilities.
The Multi-Tenant Industrial Segment
Scavo’s work at Basis has fueled his interest in the multi-tenant industrial segment. This segment does not usually garner the same level of attention as its larger counterparts, despite its resilience. According to him, the strength of small bay industrial properties lies in their tenant pool. The types of businesses that occupy these spaces—such as tradespeople, plumbers and smaller businesses—often require smaller spaces and provide steady demand, making them recession-proof.
Evaluating Investment Opportunities
Criteria | Description |
---|---|
Size of the unit and tenant sizes | Assets need to truly be multi-tenant and not dominated by one or two large renters. |
Location and rent rates | Ideal properties are located near the tenant’s customer base and have reasonable rents compared to the market. |
Basis | The property’s cap rate and cost per square foot are critical considerations. Understanding the replacement cost is key. |
With these criteria in mind, Scavo believes that a significant part of the value-add possibility in small-bay industrial properties is through renovations and improvements. These can range from creating rent-ready spaces for prospective tenants to making necessary changes for existing tenants looking to grow within the same property.
Small Bay Industrial: A promising niche in Industrial Real Estate Development
Despite the changes and challenges in the market such as the rise in interest rates, Scavo remains optimistic about the future of small bay industrial real estate. He highlights two types of sellers currently dominating the market – owners aging out of the business or experiencing fund cycle ends, causing them to sell. However, he acknowledges a potential shift to sellers who need to divest because of loan expirations or re-financings.
Despite these hurdles, Scavo maintains that the basis of profitability in the small bay industrial real estate arena continues to be a mix of landlord agility, proactive tenant relations, location advantage, and contrarian investment strategies. With a practical, hands-on approach, Scavo continues to navigate the exciting terrain of industrial real estate development.