Is Industrial Outdoor Storage An Asset Class Hiding In Plain Sight?

One of the tried and true sayings in the investing world is that there are riches in the niches. That means that finding areas where everyone isn't piling in can be very advantageous. Another investing idea is that finding the industries that support broader commerce trends as a whole can deliver returns. If you are a real estate investor like me, that may mean every building you walk into and every warehouse you drive by. You wonder who owns it and what the returns are.

One asset class that has passed me and some other real estate investors by is industrial outdoor storage (IOS). Industrial outdoor storage is what it sounds like: massive parking lots and storage spaces used primarily for trucks, products that can't be stored in a warehouse, and other rental equipment. The sites are usually under 10 acres and often have one or two buildings on the property. This is a land use that is becoming increasingly important and may benefit from growth in the warehouse and construction industries. Tenants include third-party logistics companies, renters of large equipment such as backhoes and cranes, and companies looking for container storage. 

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Making Moves In The IOS Space

Recently, BridgeInvest, a private real estate lender focused on short-term financing for unique commercial and residential assets, announced financing for a trio of IOS sites. BridgeInvest recently announced a $37.678 million loan to refinance and develop a three-asset IOS portfolio owned by Stonemont Financial Group and Cerberus Capital Management. I spoke with Jon Gitman, a partner at BridgeInvest, about the popularity of this trend. Gitman stressed that niche asset classes may offer better returns. 

Another aspect of this asset class is that there is limited institutional ownership. Until a few years ago, most owners in this space were smaller investors. "There's not a lot of it," said Gitman, "and there may not be a lot more of it because it's difficult to get entitlements to run these facilities." 

Location is also crucial to success in IOS. In the BridgeInvest deal, each asset is located near a major transportation route and proximate to significant logistics and industrial hubs. One is a facility in Staten Island, NY, that will be developed into a 6.4-acre industrial outdoor storage facility with a 10,000-square-foot building with modern amenities and maintenance capabilities. It is located near an existing Amazon facility and has easy access to New Jersey, Brooklyn, and Manhattan. 

The second location in Bloomington, CA, will be a 3.48-acre industrial outdoor storage facility with a 1,400-square-foot building. The site allows for multiple industrial uses and has easy access to railroad yards and the Ontario International Airport, further boosting its attractiveness. The third location is an 8.73-acre industrial outdoor storage facility in the North Las Vegas submarket. 

An Improving Landscape For Private Financing

According to Gitman, the demand for financing is heating up for not just IOS but all asset classes. BridgeInvest has closed more deals this year than in the last two, and several factors drive this. "The supply of credit is down, largely driven by banks, which have made the largest decrease," said Gitman. 

This is good news not just for BridgeInvest but also for all sorts of private financing and credit opportunities. While BridgeInvest works with institutional and ultra-high-net-worth investors, many private market real estate investments allow retail investors to capitalize on these high-yield opportunities. Benzinga has identified some of the most attractive options for you to consider. 

We are now watching the Arrived Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target of 7% to 9% net annual yield paid to investors monthly. The best part? Unlike other private credit funds, this one has a minimum investment of only $100. 

Gitman identified several reasons that demand is starting to heat up. The first is that owners held on to properties in the past because the value may have dropped. Many owners may now have realized that this is the new normal. They may also need to sell as loans come due or as funds need to satisfy their commitments to investors. Some owners looking to refinance can't qualify for the same amount of debt they did several years ago, which is another reason private financing has become more appealing. While BridgeInvest's latest deal focused on the IOS space, the company is looking into various areas, from multifamily to hospitality. With transaction volume increasing, the future looks bright for many with money to loan.