The downside, Airth notes, is the absence of credit tenants, which makes financing difficult to obtain and more expensive. In addition, this type of property is more management intensive than typical industrial projects because of the larger number of tenants. "Our model is based on so many tenants per manager, not so many sf per manager," he says.In the past, Koll developed most of its own buildings. However, at least for now, it has switched to acquisition because current rents are too low to justify current land and building costs. "Nobody is developing this product type right now. We can buy developments for much less than replacement cost," says Airth. "At some point, rents will catch up, but that time is a ways off." He pegs cap rates at anywhere from 6.5% to 8%, depending on the age and location of the particular property.

In markets like Los Angeles and Phoenix, the product faces competition for tenants from developers of industrial condos. However, Airth says competition is not a problem in Dallas, Denver or Salt Lake City and not likely to become one. "I don't expect to see condos sprout in those markets because the premium for owning in those areas represents a significant increase over renting. Rents have to be quite high for owning to seem like a viable alternative," he says.

Koll also competes with condo developers for product, although Airth says the greater obstacle is the need to go after properties one at a time since Koll is one of only a few investors that has a portfolio in this category. Most properties are owned by small investors or family trusts, which means Koll has to develop relationships with a large network of brokers in the markets it targets to get the first shot at the properties.

Despite the effort required to find opportunities, Airth says Koll plans to keep growing. "We want to continue to grow at a pace that's manageable," he says. "Exactly what that pace is depends how quickly we can get management in place."