Overwhelming user demand and investor interest has catapulted the industrial sector into one of the most active in commercial real estate. As opportunities tighten for the marquee assets, three CRE veterans hope to leverage high returns from one of the sector’s most often overlooked product types.
Courtesy of Industrial Outdoor Ventures. A 19-acre container and truck yard in Chanhannon, Ill.
Starting in Chicago, Houston, Dallas and Atlanta, Industrial Outdoor Ventures hopes to build a $500M national portfolio within five years.
It officially launched in January, focusing on the acquisition, development and redevelopment of industrial service facilities — truck and trailer lots, container yards and freight terminals. IOV CEO Tom Barbera, chief operating officer JD Salazar and chief financial officer Tom Voet identified industrial service facilities that store, maintain and ship bulk materials as mission critical sites, gold mines of opportunity that most other investors ignore.
“The majority of these assets are too small and too specialized for institutional players,” Voet said.
Institutional buyers are focused on larger deals and many find there is too much work involved in acquiring these small properties. But Barbera and Salazar said these facilities are almost always fully leased, and the low capital overhead means investors see high return on investment on these assets.
IOV aims to assemble a portfolio of industrial service facilities across the country, with a goal to acquire $100M in assets over the next 24 months and a five-year plan to amass $500M in the product type. If Barbera, Salazar and Voet are successful, they will effectively be institutionalizing a non-institutional product within the industrial sector, similar to how demand for and investment in self-storage facilities have taken off in recent years.
Barbera, Salazar and Voet have solid pedigrees in industrial real estate. Barbera is a 20-year veteran with stints at Grubb & Ellis and Trammell Crow. Salazar was a petroleum engineer in West Texas but switched to real estate in the mid-1980s after the industry collapsed, and moved to Chicago. (Salazar’s wife is from Burr Ridge.) He founded his own firm, Champion Realty Advisors, in 1997 and eventually partnered with Barbera to develop a spec motor freight terminal in Bolingbrook; it is the only one built along I-55 in the past decade and remains fully leased.
The pair continued to buy industrial service facilities over the next decade and determined that if they could increase the scale of what they were buying, they could approach institutional investors about partnering.
Courtesy of Industrial Outdoor Ventures. Industrial Outdoor Ventures CEO Tom Barbera, chief operating officer JD Salazar and chief financial officer Joe Voet.
“The key was aggregating these facilities into a portfolio big enough to be institutional quality,” Salazar said.
Barbera and Salazar worked on an offering memorandum outlining their goals and, once it was tweaked, circulated it to private equity funds until they found one that understood what they were doing.
Salazar said investors were attracted to the memorandum but it took some time to educate them on the product category and why they are important to the supply chains. The lack of institutional interest means limited competition for these assets. Salazar said IOV’s main competitors are entrepreneurs and tax exchange investors who understand the product type and recognize the risk buying these assets is minimized.
IOV hit the ground running with its first major acquisition, an $8M purchase of an 18.9-acre truck and container yard at 23264 Youngs Road in far suburban Channahon last month. Voet, a Duke Realty and Cobalt Capital veteran with a background in accounting, said IOV is nearing deals for industrial service facilities in Houston, Dallas and Atlanta, and plans to deploy capital in the nation’s top 20 industrial markets.
“We’re singles hitters in an industry dominated by home run hitters,” Voet said. “And if we can get five or six hits in a row, we still score runs.”