DST.EDU Series B‑Asset Classification Discussion Industrial

Editor’s note- this is part eight of a ten-part series on the var­i­ous asset types of DST offer­ings.

Indus­tri­al is one of sev­er­al com­mer­cial asset class­es and is also offered by spon­sors of Delaware Statu­to­ry Trust (DST) .  Cash investors as well as 1031 tax deferred exchange investors seek out indus­tri­al to add to their port­fo­lios.

Part 7: INDUSTRIAL ASSET CLASS

April 25, 2025
Orig­i­nal­ly Post­ed: June 16, 2022

By Al DiNi­co­la, AIF®, CEPA™
DST 1031 Spe­cial­ist
NAMCOA® — Naples Asset Man­age­ment Com­pa­ny®, LLC
Secu­ri­ties offered through MSC-BD, LLC, mem­ber of FINRA/SIPC

There are dif­fer­ent types of indus­tri­al build­ings but many of the DST offer­ings are focused on the larg­er dis­tri­b­u­tion cen­ters, indus­tri­al man­u­fac­tur­ing facil­i­ties and poten­tial­ly build­ing that house pro­duc­tion facil­i­ties. For the pur­pos­es of this writ­ing, we will focus on the larg­er build­ings and not the  small­er flex spaces (while very pop­u­lar). The ratio­nale may be the small­er build­ings are not in much demand of DST offer­ings.

I has been a few years since the  COVID 19 pan­dem­ic. The large ware­hous­es con­tin­ue to be very pop­u­lar in all com­mer­cial offer­ings.  This may be a Real Estate Invest­ment Trust (REIT) invest­ing in a new dis­tri­b­u­tion cen­ter (AMAZON) includ­ing a last mile dis­tri­b­u­tion cen­ter to a very large (2 mil­lion square feet) auto­mo­bile motor parts dis­tri­b­u­tion facil­i­ty. The indus­tri­al DST offer­ings may be a sin­gle site offer­ing or a port­fo­lio of indus­tri­al facil­i­ties.  The port­fo­lio may also have geo­graph­i­cal diver­si­fi­ca­tion mean­ing locat­ed in sev­er­al mar­kets or states. The Indus­tri­al asset class has had few­er offer­ings when com­pared to the mul­ti­fam­i­ly DST asset class.   When offered the Indus­tri­al DST asset  tend to sell out quick­ly.

Struc­ture and func­tion of indus­tri­al build­ings.
Over the past five to ten years Logis­tics has been a buzz word for describ­ing many aspects of the econ­o­my. This is also true on the stor­age and dis­tri­b­u­tion of goods that are found inside indus­tri­al and man­u­fac­tur­ing build­ings.  The indus­tri­al build­ings are very large and typ­i­cal­ly there is min­i­mal office space. Suf­fice to say indus­tri­al space is impor­tant in all regions of the coun­try.  The con­tin­ued devel­op­ment of man­u­fac­tur­ing facil­i­ties in the US has had it chal­lenges with many prod­ucts being made off­shore.  How­ev­er, once these prod­ucts (even though pro­duced abroad) may need to be assem­bled, stored, and ulti­mate­ly deliv­er­er to mar­ket for the con­sumers. There is a move to bring man­u­fac­tur­ing back to the US known as “onshore”.

There has also been anoth­er style of indus­tri­al offer­ing to become pop­u­lar. This has been known as “flex space”. An indus­tri­al park may have many dif­fer­ent small­er users with an office space in the front and ware­house in the back.  With busi­ness expan­sion these indus­tri­al parks have become very pop­u­lar. The leas­es may not be 20 years as in the case of the Ama­zon build­ings but pro­vide an abil­i­ty to have short­er leas­es with mar­ket adjust­ments in rents.

Indus­tri­al devel­op­ment con­sid­er­a­tions
Many areas of the coun­try have seen an increase in the devel­op­ment and deliv­ery of indus­tri­al space.  Most notably the south has seen an increase com­pound­ed by increased migra­tion of pop­u­la­tion.  That does not mean oth­er areas of the coun­try are not see­ing growth espe­cial­ly along the major trans­porta­tion inter­states. Every prod­uct that is pur­chased in the store or on line may move through many steps while being pro­duced, pack­aged, loaded and deliv­ered to the final des­ti­na­tion.  Where the indi­vid­ual facil­i­ties are locat­ed needs to be vet­ted as to the best loca­tion to han­dle the spe­cif­ic require­ments of the deliv­ery process or sup­ply chain needs. 

Some struc­tures and prop­er­ties  may be owned by the end user of the build­ing but if not, is owned by an investor.  The investor then would lease to users of the space.  The larg­er facil­i­ties are typ­i­cal­ly owned by pub­lic enti­ties because of the sheer size and cost of the build­ing.  These pub­lic com­pa­nies may be REITs either pub­licly trad­ed or non-trad­ed.  Spon­sors of DSTs will seek out well locat­ed indus­tri­al build­ings to pack­age the prop­er­ty. These pack­aged offer­ings will facil­i­tate the needs of cash investors as well as 1031 tax deferred exchange investors.

Fast facts on Indus­tri­al Asset class

• Loca­tion is very impor­tant for a num­ber of rea­sons.  Yes- loca­tion, loca­tion, is still valid.
• Access to all trans­porta­tion meth­ods: high­ways, rail­ways and air trans­porta­tion should be moti­vat­ing con­sid­er­a­tions.
• Mov­ing  goods via truck is a vital pri­ma­ry com­po­nent of the sup­ply chain. The loca­tion of build­ings with close adja­cen­cy (and vis­i­bil­i­ty) to inter­state high­ways becomes an added ben­e­fit.
• New needs force new designs.  Long gone are the days of shaky build­ings with out­dat­ed facil­i­ties (ameni­ties) inside and out. The bar has been raised on what the long-term users expect from the envi­ron­ment. The insti­tu­tion­al investors are on board with pro­vid­ing the nec­es­sary cap­i­tal to entice spe­cif­ic users to engage for long term. The end result is an increased appeal for the phys­i­cal struc­ture which may be a valu­able con­sid­er­a­tion when ulti­mate­ly sold.
•  The over­all size in square footage and cubic vol­ume  is increas­ing.  The ware­hous­es (bulk stor­age) are becom­ing larg­er and larg­er. Not only the build­ing sizes but the over­all size of the land mass that per­mit poten­tial  expan­sion and more truck and trail­er stor­age.
• Raise the roof! Look­ing in the rear view mir­ror 24 feet clear ceil­ing height was the stan­dard. Cur­rent­ly the desired height is 32 feet and 36 feet.  You may hear the ref­er­ence clear ceil­ing heights and that would be cal­cu­lat­ed from the floor to the ceil­ing. High­er ceil­ing means more vol­ume for goods.  Recent improve­ments in the stor­age capac­i­ty of the racks inside the build­ings (rack­ing sys­tems)  increase the bulk stor­age capac­i­ty (vol­u­met­ric stor­age space).
• The depth of the new­er build­ings is a fac­tor that is becom­ing more impor­tant.   Typ­i­cal indus­tri­al build­ings may have a depth of 150 to 160 feet (larg­er than flex at 120 feet). The new­er build­ing may have depth as long as a foot­ball field and up to 400 feet deep.
• Ten­ant improve­ments have become increas­ing­ly more cost­ly.  The automa­tion of some of the build­ings requires the ten­ant to invest a tremen­dous amount of addi­tion­al cap­i­tal in the facil­i­ties. The addi­tion­al cap­i­tal increas­es the like­li­hood of longevi­ty in the loca­tion.
• There is a need for addi­tion­al out­side space. Occa­sion­al­ly we neglect to con­sid­er what goes on OUTSIDE the ware­house.  To expe­dite the move­ment of goods there have been notice­able changes adding to the effi­cien­cy of the oper­a­tion. There is need of ample trac­tor trail­er stor­age as well as park­ing and pro­vid­ing a safe space for maneu­ver­ing the big rigs.  The need for extra space equates to larg­er over­all sites.
• There have been build­ing effi­cien­cies improve­ments includ­ing added insu­la­tion and oth­er advance­ment in pro­tect­ing mechan­i­cal com­po­nents.  There may also be con­sid­er­a­tions for need­ed air con­di­tion­ing for the items being stored even tem­porar­i­ly inside the ware­house. Cer­tain build­ings may also have ded­i­cat­ed frozen sec­tions as well.
• Cold stor­age facil­i­ties have increased in num­bers cre­at­ing more oppor­tu­ni­ty for investors.

The Invest­ment Focus
Near­ly every offer­ing Pri­vate Place­ment Mem­o­ran­dum (PPM) includes a sec­tion or dis­claimer on anoth­er type of COVID infec­tion poten­tial­ly dis­rupt­ing busi­ness.  Some com­pa­nies may have increased inven­to­ry which cur­rent­ly may cre­ate oth­er unin­tend­ed con­se­quences as the con­sumer is rethink­ing their buy­ing habits and needs as a result of infla­tion. How­ev­er, AMAZON and oth­ers con­tin­ue to secure well locat­ed bulk stor­age facil­i­ties with larg­er truck courts as well as facil­i­ties known as Last Mile Dis­tri­b­u­tion Cen­ters. Many con­sumers uti­lize e‑commerce and have pack­ages deliv­ered near­ly every day to their doorstep. We are all famil­iar with the deliv­ery vans (orig­i­nat­ing from the last mile dis­tri­b­u­tion cen­ters) that show up near­ly every day of the week to our homes.

Typ­i­cal­ly, DSTs (and oth­er NNN) require the ten­ants to take care of repairs.  How­ev­er, there are occa­sions where the investors or spon­sors are respon­si­ble for struc­tur­al com­po­nents. Those details would be includ­ed in the lease agree­ment along with renew­al options, rent increas­es and oth­er details.

Invest­ment struc­ture will vary depend­ing on the spon­sor offer­ing.

• DSTs are long term assets that may range between 7–10 years.
• By design many of the DST offer­ings are struc­tured with lever­age. How­ev­er, there are a few all-cash offer­ings from time to time.
• The lever­age is non-recourse and may sat­is­fy the investor’s IRS require­ments of replac­ing the debt under the 1031 tax deferred exchange.
• There may also be offer­ings with increased debt or loan to val­ue (LTV). By design a high­er LTV may be in place to off­set high­er debt replace­ment needs.
• Dis­tri­b­u­tion will vary depend­ing on the indi­vid­ual offer­ings.
• There is also a struc­ture ref­er­enced as Zero Dis­tri­b­u­tion (sim­i­lar to a zero coupon).  Rather than pay­ing an annu­al dis­tri­b­u­tion to the indi­vid­ual investors all dis­tri­b­u­tions are ded­i­cat­ed to pay­ing down the loan on the prop­er­ty. The investor may ben­e­fit from a low­er loan pay­off when it comes time for the prop­er­ty to be sold.

Ten­ant qual­i­ty

• The ten­ant qual­i­ty may include a local sin­gle user to a nation­al cred­it rat­ed  qual­i­ty ten­ant.
• There has been sin­gle ten­ant user who have owned their build­ing for many years and have equi­ty in the prop­er­ty. These users include pri­vate and pub­lic com­pa­nies. These users may exe­cute a sale lease back (pulling cash out of the prop­er­ty) and then exe­cute an extend­ed long-term  lease.  The cash would be used to make improve­ments to an exist­ing struc­ture.
• Large users (Ama­zon, major auto man­u­fac­tur­ers, etc.) will make a sub­stan­tial invest­ment inside the build­ing includ­ing robot­ics to assist in the pro­cess­ing and needs of the busi­ness.

Con­clu­sion
Indus­tri­al has demon­strat­ed a track record of a sta­ble invest­ment asset.  There is a grow­ing need for addi­tion­al indus­tri­al space in many loca­tions through­out the coun­try.  DSTs may pro­vide tax favored returns. If you are con­sid­er­ing an invest­ment, please con­sult your finan­cial advi­sor for addi­tion­al infor­ma­tion.

DSTs are not for all investors. The acqui­si­tion of a DST is for accred­it­ed investors only. Con­tact your invest­ment advis­er for addi­tion­al details on how a DST may be a solu­tion to your 1031 Exchange and suit­ed for your invest­ment future. For more infor­ma­tion on how to prop­er­ly set up an IRC 1031Tax Deferred Exchange or if you are an accred­it­ed investor and would like addi­tion­al infor­ma­tion on a DST con­tact Al DiNi­co­la at 239–691-8098 or email adinicola@namcoa.com.

This is not an offer to pur­chase or solic­i­ta­tion to pur­chase any secu­ri­ty, as such be made only through an offer­ing mem­o­ran­dum or prospec­tus. Invest­ing in secu­ri­ties, real estate, or any invest­ment, whether pub­lic or pri­vate, involves risk, includ­ing but not lim­it­ed to the poten­tial of los­ing some or all of your invest­ment dol­lars when you invest in secu­ri­ties. You should review any planned finan­cial trans­ac­tions that may have tax or legal impli­ca­tions with your per­son­al tax or legal advi­sor. NAMCOA, LLC is a Reg­is­tered Invest­ment Advi­sor, reg­u­lat­ed by SEC (Secu­ri­ties and Exchange Com­mis­sion).

NAMCOA’s cor­po­rate office is locat­ed at 999 Van­der­bilt Beach Road, Suite 200, Naples Flori­da 34108. Secu­ri­ties Offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC. 8215 SW Tualatin ‑Sher­wood Rd, Suite 200 Tualatin, OR 97062410 Peachtree Park­way Suite 4245, Cum­ming, GA 30041. MSC-BD, LLC and NAMCOA are inde­pen­dent­ly owned and are not affil­i­at­ed.

Thank you.

NAMCOA® — Naples Asset Man­age­ment Com­pa­ny®, LLC