A.CRE

Industrial Flex

An industrial building that can typically be adapted for a wide variety of uses. This may include office space, as well as retail, distribution, or a variety of industrial uses.

Putting ‘Industrial Flex’ in Context

Summit Industrial Partners, a regional real estate investment firm specializing in industrial assets, has identified an opportunity to acquire Bridger Gateway Flex Park, a 60,000-square-foot industrial flex property in Bozeman, Montana. The property, built in the 1990s, is situated near a growing commercial corridor with excellent access to major highways and a local airport.

Property Details:

  • Size: 60,000 square feet across three buildings
  • Current Occupancy: 70%, with six tenants in spaces ranging from 3,000 to 12,000 square feet
  • Tenant Mix: Light manufacturing, tech startups, small distribution centers, and one local retail showroom
  • Leases: Some tenants are on short-term leases, creating turnover risk but allowing for near-term value enhancement through leasing at market rates
  • Location Benefits: Proximity to Yellowstone National Park and Montana State University has fostered business and population growth in the area

Value-Add Opportunity:

The property is currently underperforming due to outdated finishes in office areas, lack of modern HVAC systems, and inefficient lighting in warehouse spaces. Summit Industrial Partners sees an opportunity to increase rents and occupancy by investing in upgrades and repositioning the property as a premier industrial flex space in Bozeman.

Business Plan:

  • Renovations: Invest $1.5 million in capital improvements, including upgrading office finishes, adding LED lighting, and improving parking and loading areas
  • Leasing Strategy: Target emerging industries in Bozeman, such as outdoor gear manufacturers and tech companies, with competitive lease terms and flexible space configurations
  • Pro Forma Goals: Stabilize occupancy at 95% within 18 months, with average rents increasing from $12 per square foot to $16 per square foot, net

Context for ‘Industrial Flex’:

Industrial flex buildings like Bridger Gateway Flex Park are highly adaptable. They cater to businesses requiring combinations of office, retail, and industrial space under one roof. For example, one current tenant uses their 10,000-square-foot unit as a showroom (30%), office space (20%), and warehouse for online orders (50%). This adaptability has made the property attractive to a diverse range of tenants.

Hypothetical Calculation:

Summit projects that the repositioned property will generate an annual net operating income (NOI) of $960,000 once stabilized. Assuming an exit cap rate of 7%, the projected property value would be:

Projected Value = NOI ÷ Cap Rate = $960,000 ÷ 0.07 = $13,714,286

With an acquisition price of $8.5 million, plus $1.5 million in renovations, the investment could generate significant value for Summit.

This hypothetical scenario illustrates the versatility and potential of industrial flex properties, particularly in growth markets like Bozeman, Montana.

Related Content:
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