Buying Low Without Overspending on Improvements

Turner: “Multitenant industrial is really expensive to build, so we haven’t seen new construction in well over a decade—maybe closer to 20 years depending on market.”

IRVINE, CA—A little bit of paint goes a long way toward making an older asset look closer to new, BKM Capital Partners ‘ director of acquisitions Brett Turner tells GlobeSt.com. The firm recently acquired Spencer Airport Center , a seven-building 177,597-square-foot multi-tenant industrial park in Las Vegas, for $15.6 million from what RCA Analytics reports was Guardian Financial Services . The firm purchased this particular asset at 40% below replacement costs and plans to implement a series of capital improvements to capitalize on the continued growth of the region. We spoke exclusively with Turner about the firm’s activities as well as strategies for buying low while remaining within budget on improvements. GlobeSt.com: What has your firm been up to lately? Turner: We closed on Spencer Airport Center on August 10, but on August 5, we closed on Tukwila Commerce Center , with GLP as the seller. That property was 290 units, and it was 80% occupied, so it was a value-add deal for us and a heavy capital-reposition play. That’s really all we do—we’re value-add players. All we do is multitenant industrial business parks with a value-add component. Prior to the Tukwila deal, we purchased Tempe Commerce Park in Tempe, AZ, a $58-million deal, from Invesco , which was again a value-add transaction on a multitenant business park. Before that, it was the RREEF Business Park portfolio in May, which included assets in Tempe, AZ; this was about a $25-million transaction. In April, we closed the Rosen Portfolio , which was four business parks spread throughout Phoenix, for $35 million.

Even while in escrow, BKM was signing new tenants for Spencer Airport Center.

GlobeSt.com: In addition to the Phoenix area, which markets do you continue to find attractive? Turner: We love the Phoenix area, and we concentrate west of the Rockies. We have a heavy presence in Las Vegas, Phoenix, Portland and Seattle. We’re making a big push in Seattle right now, with a few other assets close to being under contract. We love the growth markets, where there are discounts on replacement costs and a good growth story. Phoenix has higher vacancy, but also higher rates of absorption. You can still add value to the asset and lift rents to where they should be today on properties that have been depressed by neglect from previous ownership. Phoenix is a great growth story in terms of jobs, and the same thing is happening in Kent Valley, WA, the Seattle submarket where we’ve been very active lately. It’s a very tight market, and it hasn’t seen skyrocketing rent, but it is seeing heavy rent growth. It’s a market that was depressed for some time and below peak levels. GlobeSt.com: How do you purchase assets at significantly below replacement value and not overspend in improvements? Turner: First off, our asset class in and of itself, multi-tenant industrial, is really expensive to build. In big-box industrial, you only have one set of bathrooms, two offices, etc., but in the multi-tenant space, you have many bathrooms, doors, etc. It’s really expensive, so we haven’t seen new construction in well over a decade—maybe closer to 20 years depending on market. It’s inherent in the asset class itself. Further, what we find attractive is neglect from previous ownership. When we come in we come in with fresh capital , fix it up, make sure the structural elements work and modernize it with a paint scheme, signage, facades, entries—a little bit of paint goes a really long way. We can do things that really don’t cost much but make an impact with tenants. GlobeSt.com: What else should our readers know about the Spencer Airport Center purchase? Turner: It’s a great asset. While in escrow, we leased about a third of the vacancy, so it was a big win for us. There was immediately cash flow out of the shoot. With a capital-improvement program of new paint, landscaping, signage and asphalt, it really just needs a little bit of a facelift and it will be a really successful deal for us.