The Mountain Town Opportunity
America runs on Class B industrial. The US, specifically the Upper Rockies region, is in the midst of a transformational shift in manufacturing and logistics investment, driving demand well past the supply of suitable large-scale industrial facilities.
While local population growth in mountain markets is driving record demand for housing with some spillover to industrial demand, the bulk of industrial demand is from larger regional and national employers expanding operations into the region. They are attracted to the lower cost of operations, business-friendly climates, and growing populations.
Investing In The Next Generation of Demand
The next generation of industrial tenants requires larger footprints with more advanced capabilities including higher clearances, at-grade loading docks, durable construction, and demisable footprints.
The majority of industrial real estate in our focus markets was built by local operators to serve smaller tenants with simpler needs, mostly buildings smaller than 10k sf.
Local developers lack the portfolio depth and capabilities to serve the next-generation of high-quality, large tenants.
The lack of supply and demand transformation is pressuring market rents in our larger focus markets. These sustained rent levels provide sufficient development and operating yields for both value-add assets and new developments.
Building Economics of Scale
Real estate is generally linear with few economies of scale. Industrial is uniquely capable of generating increasing returns with lower risk as an operator’s scale increases.
The moat is capacity (square footage). As capacity increases, deal flow and tenant partnership opportunities increase exponentially.
Owning the demand funnel requires capacity. As an operator’s demand funnel expands, it amasses specific knowledge it can use to build new capacity either through value-add acquisitions or new developments at lower cost and risk than smaller operators.
This unique leverage point directly translates to stronger returns and interim yields for investors.
Our internal operating advantages allows us to maximize the universe of suitable tenants at higher rents with operate more efficiently to smaller scale operators.
We orient our decisions around a quasi-permanent hold strategy focused on maximizing after-tax returns. Our foundational investment principles:
- We are not a buy & sell quick operator. We exit assets opportunistically and use tax management tools like accelerated depreciation, opportunistic refinancing, and 1031 reinvestments to maximize tax-advantaged liquidity.
- We use conservative leverage and filter opportunities on strict unlevered yield hurdles.
- We will not proceed with a deal if meeting our minimum return hurdles is contingent upon an exit or market appreciation or if we believe debt coverage will be at risk at any point.
Class A & B industrial assets with in-place rents and high-quality tenants. We opportunistically invest in light improvements to increase rent performance mainly when assets lack specific features next-gen tenants require.
Our core and core-plus assets use conservative leverage (45%-60%) with target annual returns of 8%-12% and strong unlevered yields. Core and core-plus assets derive a greater share of returns from cash flows than market appreciation.
Class B industrial assets with in-place rents and a clear ROI from light capital improvements and management improvements. Target Class B acquisitions include assets with a potential to serve next-gen demand and those where our operational leverage and leasing edge can increase performance.
Our value-add assets use moderate to conservative leverage (60%-75%) with target annual returns between 11% and 15% and strong unlevered interim yields.
Opportunistic Development → Core/Core-Plus
We develop Class A and A- industrial assets in supply-constrained markets. Our preference (and current standard) is to partner with high-quality tenants who commit to leases before delivery, ideally initiating development after ≥ 50% of a space is committed.
This approach allows us to minimize risk, lower leverage costs, and eliminate lease up delays.
Development assets use varying levels of leverage (~50% of ground up, greater for redevelopment) with target annualized returns over 20% with strong unlevered interim yields after stabilization.