In today’s competitive commercial real estate landscape, identifying truly promising value-add industrial opportunities requires increasingly sophisticated analysis and market understanding. For commercial brokers working with clients like Phoenix Industrial Redevelopment (PIR), recognizing properties with genuine transformation potential—what we call “PIR-style potential”—can create win-win scenarios for sellers, buyers, and the brokers who bring them together.
At PIR, we’ve refined a specific approach to small-bay, multi-tenant industrial properties that has allowed us to consistently create value across market cycles. By understanding our acquisition criteria and value creation methodology, savvy commercial brokers can proactively identify opportunities that align with our investment strategy, increasing the likelihood of successful transactions and long-term client relationships.
The PIR Value-Add Formula
Before diving into specific property characteristics, it’s helpful to understand the fundamental value-add formula that drives PIR’s acquisition strategy. Our approach focuses on small-bay, multi-tenant industrial properties (typically 20,000-100,000 square feet) with individual spaces ranging from 1,000 to 5,000 square feet. We target properties with the following value-add equation:
Current Property Value + Strategic Improvements + Operational Optimization = Enhanced Property Value
Breaking this down:
- Current Property Value: We acquire functionally sound but underperforming industrial properties.
- Strategic Improvements: We implement targeted capital improvements focused on enhancing functionality, appearance, and tenant appeal rather than cosmetic renovations.
- Operational Optimization: We apply sophisticated property management practices, strategic leasing approaches, and tenant relationship development to maximize occupancy and rental rates.
- Enhanced Property Value: The result is a stabilized asset with higher NOI, stronger tenant base, and significantly increased market value.
With this formula in mind, let’s explore the specific characteristics that make a property an ideal PIR acquisition candidate.
Physical Characteristics: The Bones of Value-Add Potential
When evaluating industrial properties for value-add potential, several physical characteristics serve as strong indicators of transformational opportunity:
Functional Layout with Reconfiguration Potential
The most promising value-add properties feature fundamentally sound layouts that can be adapted to meet contemporary tenant needs. Key aspects include:
- Flexible Bay Depths: Ideally 35-50 foot depths that allow for various tenant configurations
- Appropriate Column Spacing: Typically 20-25 foot spacing that balances structural efficiency with space flexibility
- Adaptable Demising Options: The ability to combine or divide spaces to accommodate different tenant size requirements
- Reasonable Clear Heights: Typically 14-24 feet, sufficient for small-bay industrial tenants without the premium of higher warehousing spaces
Properties where these core elements are present but poorly utilized often represent ideal value-add opportunities.
Adequate Power Infrastructure or Upgrade Potential
Electrical systems represent a critical consideration in small-bay industrial properties:
- Base Power Capacity: Minimum 100 amps per bay, with higher capacity creating additional value
- Electrical Distribution: Individual metering capabilities or the potential to install tenant submeters
- Upgrade Pathways: Properties with logical routes for electrical system enhancements
- Power Quality: Stable, clean power without history of significant issues
While insufficient power can be addressed, the cost must be factored into acquisition economics. Properties with adequate base infrastructure but poor distribution often present compelling value-add opportunities.
Loading Capabilities with Enhancement Potential
Loading configurations significantly impact tenant operations and property functionality:
- Dock-High Positions: Existing or potential locations for dock-high loading positions
- Grade-Level Access: Sufficient drive-in doors or conversion potential
- Loading Area Circulation: Adequate truck maneuvering space or potential to reconfigure
- Loading Ratio: Typically seeking minimum ratios of 1 dock door per 5,000-10,000 square feet
Properties with suboptimal loading configurations that can be enhanced through targeted improvements often represent strong value-add opportunities.
Strategic Roof Considerations
Roof condition represents both a potential risk and opportunity in industrial value-add scenarios:
- Remaining Useful Life: Minimum 5+ years of remaining useful life or clear replacement economics
- Structural Integrity: Sound structural elements without significant water intrusion history
- Drainage Systems: Adequate drainage with potential for enhancement
- Energy Efficiency Potential: Opportunities for insulation improvements or reflective coatings
Properties with fundamentally sound roof structures but need for systematic maintenance or targeted repairs often present attractive value-add opportunities, as these improvements deliver significant tenant satisfaction relative to their cost.
Parking and Site Utilization
Site configuration and parking represent increasingly important elements in industrial functionality:
- Parking Ratio: Minimum 1.5 spaces per 1,000 square feet, with higher ratios increasingly valuable
- Site Flow: Logical circulation patterns for vehicles and materials
- Yard Space Potential: Opportunities to create secured or unsecured yard areas
- Site Densification Potential: Underutilized portions of the site that could accommodate expansion
Properties with inefficient site utilization that can be reconfigured to improve functionality typically offer substantial value enhancement potential.
Location Attributes: Position for Long-Term Success
Beyond physical characteristics, location attributes significantly impact value-add potential in industrial properties:
Infill Dynamics
Properties in infill locations with supply constraints typically offer superior value-add potential:
- Development Barriers: Areas with limited land availability for new construction
- Redevelopment Protection: Locations with minimal risk of residential or commercial encroachment
- Established Industrial Context: Surrounding uses compatible with industrial operations
- Zoning Stability: Areas with long-term industrial zoning commitment
Infill locations typically command rent premiums and experience less vacancy volatility, enhancing the success probability for value-add strategies.
Transportation Connectivity
Access to transportation networks remains fundamental to industrial functionality:
- Highway Proximity: Typically seeking properties within 2 miles of major highways
- Arterial Road Access: Direct access to major arterials with minimal residential street navigation
- Traffic Congestion Patterns: Reasonable transit times during peak periods
- Public Transportation: Access to public transit for workforce commuting (increasingly important)
Properties with strong transportation fundamentals but current underperformance often represent ideal value-add targets.
Labor Market Accessibility
As labor availability becomes increasingly critical for industrial tenants, workforce access has grown in importance:
- Population Density: Sufficient population within 30-minute commute radius
- Workforce Match: Local population skills aligned with typical tenant requirements
- Wage Dynamics: Competitive but sustainable wage environments
- Housing Affordability: Reasonable housing costs relative to typical industrial wages
Properties in locations with strong labor accessibility but operational underperformance frequently offer substantial value-add potential.
Competitive Supply Context
The surrounding competitive environment substantially impacts value-add potential:
- Limited New Supply: Areas with constraints on new industrial development
- Aging Competitive Stock: Markets where competing properties also require modernization
- Rent Growth Trends: Historical patterns of healthy rent increases
- Occupancy Stability: Markets maintaining strong occupancy through economic cycles
Markets with supply constraints and aging competitive properties typically present ideal environments for industrial value-add strategies.
Operational Indicators: Signs of Untapped Potential
Beyond physical characteristics and location, several operational factors indicate properties with significant value-add potential:
Below-Market Rent Profiles
Rent levels significantly below market potential represent a primary value-add indicator:
- Rental Rate Gap: Current rents 15-30% below comparable properties
- Legacy Lease Structures: Outdated lease terms that don’t reflect current market standards
- Expense Recovery Deficiencies: Inadequate pass-through provisions leaving income on the table
- Renewal Pattern Weaknesses: History of unnecessary concessions or below-market renewals
Properties where operational improvements alone can drive significant income enhancement present compelling value-add opportunities.
Suboptimal Tenant Mix
Tenant composition often signals untapped property potential:
- Use Imbalances: Overly concentrated in single tenant categories
- Credit Quality Challenges: Weaker tenant credit profiles than the property could attract
- Tenant Compatibility Issues: Conflicts between tenant operations affecting overall property functionality
- Retention Pattern Weaknesses: Higher-than-market turnover suggesting tenant dissatisfaction
Properties with fundamentally sound physical characteristics but suboptimal tenant composition frequently represent strong value-add opportunities.
Management Inefficiencies
Operational approaches often create value-add potential independent of physical condition:
- Deferred Maintenance Patterns: Systematic underinvestment in ongoing maintenance
- Reactive Management Approach: Absence of preventative maintenance programs
- Tenant Communication Weaknesses: Poor tenant relationship management
- Expense Control Deficiencies: Operating expenses significantly above market benchmarks
Properties suffering from management inefficiencies rather than fundamental physical limitations typically present attractive value-add opportunities.
Capital Constraint Indicators
Signs of capital constraints often identify properties ripe for value enhancement:
- Delayed System Replacements: Postponed replacement of key building systems approaching end of useful life
- Deferred Cosmetic Updates: Neglected appearance improvements despite sound structural elements
- Minimal Technology Integration: Absence of basic technology enhancements common in competing properties
- Outdated Common Areas: Neglected common spaces and site elements
Properties suffering primarily from capital constraints rather than fundamental physical or locational deficiencies typically offer strong value-add potential.
Owner Situation Signals: Identifying Motivational Alignment
Beyond property characteristics, owner situations often create value-add opportunities:
Lifecycle Misalignment
Properties no longer aligned with owner investment objectives:
- Ownership Fatigue: Long-term owners ready to transition
- Investment Horizon Shifts: Owners seeking shorter-term liquidity
- Risk Tolerance Changes: Owners no longer comfortable with value-add execution
- Geographic Focus Evolution: Owners concentrating on different markets
Properties where owner objectives no longer align with value-add execution frequently present acquisition opportunities with reasonable pricing expectations.
Partnership Dynamics
Entity-level considerations often create value-add opportunities:
- Partner Divergence: Ownership groups with evolving investment objectives
- Generational Transitions: Family ownership structures experiencing succession challenges
- Entity Dissolution Needs: Partnerships requiring liquidation for various reasons
- Tax Situation Changes: Evolving tax considerations driving disposition decisions
Properties available due to ownership entity considerations rather than property-specific concerns often represent attractive value-add opportunities.
Capital Structure Pressures
Financing situations frequently create value-add opportunities:
- Approaching Loan Maturity: Properties facing refinancing requirements
- Recapitalization Needs: Ownership requiring equity infusions
- Debt Service Challenges: Properties experiencing debt service pressure despite fundamental asset quality
- Lender Relationship Changes: Shifts in lender requirements or relationship dynamics
Properties where capital structure considerations drive disposition decisions often present opportunities for appropriately structured value-add acquisitions.
Portfolio Rationalization
Larger portfolio dynamics frequently create individual property opportunities:
- Strategic Focus Shifts: Portfolio owners concentrating on different property types
- Geographic Concentration Efforts: Organizations exiting non-core markets
- Scale Efficiency Pursuits: Larger owners divesting smaller assets that receive insufficient attention
- Performance Target Pressures: Properties underperforming within portfolio context despite having intrinsic value
Properties available due to portfolio-level decisions rather than asset-specific concerns typically offer strong value-add potential at reasonable acquisition parameters.
The Broker’s Role: Creating Win-Win Opportunities
For commercial brokers working with clients like PIR, understanding our value-add approach creates opportunities to facilitate successful transactions benefiting all parties:
Pre-Marketing Identification
Proactive brokers can identify PIR-style opportunities before formal marketing:
- Owner Network Development: Cultivating relationships with owners of properties matching PIR criteria
- Portfolio Review Discussions: Consulting with portfolio owners regarding rationalization opportunities
- Refinancing Transition Conversations: Identifying properties approaching debt maturities
- Succession Planning Dialogues: Engaging owners facing generational transition decisions
Identifying opportunities before formal marketing often creates smoother transactions with better outcomes for all parties.
Transaction Structuring Creativity
Understanding PIR’s value-add approach enables creative transaction structuring:
- Phased Closing Options: Structuring acquisitions to align with seller timing needs
- Seller Participation Mechanisms: Creating opportunities for sellers to maintain participation in future upside
- Contingency Management Approaches: Developing solutions for property-specific challenges
- Closing Flexibility Arrangements: Accommodating seller requirements while maintaining transaction viability
Creative structuring often transforms challenging situations into successful transactions.
Value-Add Narrative Development
Effectively communicating value-add potential enhances transaction probability:
- Potential-Focused Marketing: Emphasizing transformation opportunity rather than current limitations
- Constraint Contextualization: Framing current property challenges within solvable parameters
- Comparable Transformation Examples: Providing relevant examples of similar successful transformations
- Economic Upside Illustration: Clearly demonstrating the financial implications of value-add execution
Properties positioned with compelling value-add narratives typically attract stronger buyer interest and superior pricing.
Due Diligence Facilitation
Proactive due diligence support significantly impacts transaction success:
- Documentation Preparation: Organizing comprehensive property information packages
- Access Coordination: Facilitating thorough physical property access
- Tenant Interview Facilitation: Arranging constructive tenant discussions
- Local Knowledge Integration: Providing market-specific insights affecting value-add execution
Comprehensive due diligence support substantially increases closing probability for value-add transactions.
PIR’s Acquisition Parameters: What We’re Seeking Now
For brokers working with industrial property owners, understanding PIR’s current acquisition parameters can help identify suitable opportunities:
Property Characteristics
PIR is actively seeking properties with the following characteristics:
- Size Range: 20,000 to 100,000 square feet
- Configuration: Multi-tenant with bay sizes ranging from 1,000 to 5,000 square feet
- Clear Height: Minimum 14 feet, preferably 16-24 feet
- Construction Type: Typically concrete tilt-up, block, or metal construction with sound structural elements
- Age Range: Properties built between 1960 and 2000 often represent ideal candidates
- Lot Size: Sufficient for parking ratio of 1.5+ spaces per 1,000 square feet
Financial Parameters
PIR evaluates opportunities within the following financial framework:
- Price Range: $40-100 per square foot depending on market and condition
- In-Place Cap Rate: Typically 6-9% on current income
- Vacancy Factor: Up to 35% vacancy considered, with higher vacancy acceptable in some cases
- Below-Market Rents: Current rents at least 20% below market potential
- Value-Add Potential: Target 30-60% value enhancement through improvements and operational optimization
Geographic Focus
PIR is currently targeting properties in the following geographic areas:
- Western States: Oregon, Washington, California, Nevada, Arizona, Colorado, Utah
- Southeast: Georgia, Tennessee, North Carolina, South Carolina, Florida
- Texas: Dallas-Fort Worth, Houston, San Antonio, Austin
- Mountain Region: Colorado, Utah, Idaho
- Midwest Selective Markets: Ohio, Indiana, Kentucky
Owner Situations
PIR is particularly well-suited to work with owners in the following situations:
- Transition Planning: Owners seeking to exit active management
- Portfolio Rationalization: Larger owners divesting non-core assets
- Partnership Resolutions: Ownership groups requiring liquidity
- Capital Constraint Situations: Properties requiring investments beyond current owner capacity
- Loan Maturity Pressures: Properties facing refinancing challenges
Working with PIR: A Broker’s Guide
For commercial brokers interested in working with PIR, we offer several engagement approaches:
Direct Opportunity Submission
Brokers can submit potential acquisition opportunities directly through our website or by contacting our acquisition team. When submitting opportunities, we particularly value:
- Comprehensive Property Information: Detailed property specifications including physical characteristics, tenancy information, and financial performance
- Value-Add Narrative: Clear articulation of the value enhancement opportunity
- Market Context: Relevant information about the property’s competitive position
- Owner Situation Insights: Appropriate information about owner objectives and timing requirements
Off-Market Consultation
We welcome discussions with brokers regarding potential off-market opportunities before formal marketing. These consultations can help determine whether specific properties align with our acquisition criteria before approaching owners with potential interest. To learn more, please visit www.StubbornSellerSolution.com
Conclusion: Creating Value Through Collaborative Opportunity Identification
The identification of industrial properties with genuine value-add potential requires collaboration between knowledgeable property owners, experienced buyers like PIR, and skilled commercial brokers who understand both sides of the transaction. By recognizing the specific characteristics that create PIR-style value-add potential, brokers can more effectively match opportunities with our acquisition approach, creating successful outcomes for all parties.
As the industrial market continues to evolve with reshoring initiatives, technology advancement, and changing tenant requirements, the opportunity to create value through strategic property enhancement will likely persist. Properties that may appear challenged in their current state but possess the fundamental characteristics for transformation represent particularly compelling opportunities in this environment.
We value our relationships with commercial brokers who bring market knowledge, owner relationships, and transaction expertise to the acquisition process. By working together to identify properties with genuine value-add potential, we can continue building our portfolio of improved industrial assets while creating successful transactions for property owners and the brokers who represent them.
For brokers with potential opportunities matching our acquisition criteria, we invite you to contact our acquisition team to discuss how we might work together to create win-win outcomes for all parties involved.
