We believe now is an opportune time to acquire industrial real estate. According to RREEF, the real estate investment management business of Deutsche Bank's Asset Management division, "The next two years should prove to be an excellent vintage period for investors of core industrial real estate. Current pricing for core industrial real estate, measured as a spread over 10-year T-Bills or on a price per square foot basis, is a relative bargain compared to historical industrial values, current replacement values or to other sectors today.1"


According to NCREIF Property Index data, industrial real estate posted an average annual total return of 9.8% from 1995 through 2010.3

As indicated in the graph, the demand for industrial space (i.e., "net absorption") is projected to significantly outpace new construction (i.e., "completions") over the next several years.4


Industrial real estate is a resilient asset class that has weathered recent economic conditions better than several other real estate types - accounting for only 7% of the overall distressed market.2

Tenant Improvement Costs

Warehouse space typically requires relatively few tenant improvements when re-leasing a facility thus helping to enhance net operating income.

Operating Costs

Industrial properties generally don't have significant expenses associated with maintenance of elevators, complicated HVAC units, parking structures, lobbies, corridors, intricate power systems, etc.

Hedge Against Inflation

The lease structure associated with industrial properties often passes the risk and responsibility of taxes, insurance and property maintenance directly to the tenant thus insulating the landlord from future increases in these expenses.

1: https://www.irei.com/uploads/marketresearch/166/marketResearchFile/Industrial-FD-10-10.pdf
2: http://www.rcanalytics.com/commercial-troubled-asset-radar-reports.aspx
3: http://www.ncreif.org/property-index-returns.aspx. Calculated from average annualized quarterly industrial property returns that are included in the NCREIF Property Index. Past performance is no guarantee of furture results.
4: http://www.cbre.com/NR/rdonlyres/53EC7E25-4B2A-4EA5-AC94-19E84AC7FB6B/821716/AnnualTrendsReport.pdf

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