and consider their advantages and disadvantages in addition to whether they can, on paper, afford the rent payment for the lease term. He learned from his father, who had learned from his father, that it’s important as the landlord to have a “warm and fuzzy” feeling about the tenant. His grandfather said that having that feeling almost always ensures a successful landlord-tenant relationship, which is paramount to a successful warehouse investment. Both investors agree that written leases protect both the tenant and the owner, so each knows what to expect over the duration of their relationship. But they also know there is another reason to have written leases: From an investment standpoint, when leases are in place year after year, the income stream is documented and will be backed up by tax returns. This information is paramount when it’s time to make a successful and profitable exit from the investment because it proves to the next investor the historical profitability of the asset. Clearly, considering industrial warehouse investment requires investigating many factors, including tenant examination, economics of the market, and concrete number crunching. With a combination of it all, investment in warehouse space in 2023 and beyond can prove to be a highly lucrative and
analyzing the CAP rate and ROI. And brokers are best left to advertising and marketing the rental space going forward. Accounting/CPA staff to research tax breaks and government incentives and to understand and advise on tax obligations and how they might affect ROI, in addition to cost segregation strategies in depreciation. Property managers to handle day-to-day operations and collect rent and manage tenant relationships. Another savvy investor, John Brown of Lowrie Brown Investment Company located in Orlando, Florida, feels the tenant mix and type of tenant is critical in his family-owned warehousing investment company. His company owns and manages more than 150,000 square feet of in- dustrial space in the Orlando metro area. He feels knowing the space and neighborhood of the warehouse in- timately leads to knowing what type of tenant will be successful in that
space. Additionally, Brown strives to foster long-term relationships with tenants and believes in recognizing current economic conditions. He says, “Even if local rent prices have skyrocketed, we don’t force substantial rent increases on tenants who cannot afford it. We meet with the tenant before lease expiration and discuss what the tenant can pay against what the current market conditions are, and then work to find a compromise where we’re both comfortable.” Brown prefers leasing to medi- um-sized mom-and-pop businesses rather than franchises or asset manag- ers because he believes it’s important the tenant have “skin in the game” at their space. He believes the tenant will maintain their space better and be more inclined to invest in improvements to grow their business, which in turn im- proves the asset. Even so, he acknowl - edges that like any investment, there is always risk involved, mainly from the tenant who cannot pay the rent. He maintains it’s important to evaluate each applicant individually
long-lasting investment vehi- cle—and can indeed be sexy! •
Susan Reilly is a commercial real estate advisor with Berkshire Hathaway Flori- da Realty. She specializes in industrial and multifamily investment properties across her native state of Florida. Email comments or questions to floridacrepro@gmail.com.
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