Bay Street Capital, Drake Form JV to Build $100M IOS Portfolio

Bay Street Capital and Drake Real Estate have formed a joint venture aiming to build a $100M portfolio this year of industrial outdoor storage properties, a hot sector drawing the attention of institutional investors as tight industrial markets increase the value of these infill properties, mainly in urban centers.

“We believe IOS is experiencing similar trends to traditional industrial real estate while offering a more attractive return profile. Furthermore, IOS offers resiliency for investors in an economy facing headwinds,” said Jeremy Stenberg, principal of Bay Street, in prepared remarks.

Bay Street and Drake already have been acting in tandem to acquire IOS properties. Last month, the partners closed on two IOS properties in the Nashville area with a combined 18 acres of industrial outdoor storage space.

According to a joint press release issued by the companies, one of the properties is undergoing redevelopment while the other has secured a long-term lease. The joint venture expects to close on additional IOS properties at the end of this month.

“As IOS continues to experience high demand, record rents and low vacancy rates, it is exciting to form this joint venture,” said David Cotterman, chief investment officer of Drake.

Several other players in the IOS sector have formed partnerships to rapidly expand their industrial outdoor storage portfolios. Criterion Group recently formed a joint venture with Columbia Pacific Advisors to expand its IOS portfolio deploying $2B in capital by the end of 2023, GlobeSt.com reported.

Criterion, which earlier this week acquired eight IOS properties encompassing 151 acres for a total price of $45.3M, extending its reach into Virginia and North Carolina. The company’s IOS portfolio, valued at $550M, now includes more than 50 properties encompassing more than 677 acres in 13 states.

Earlier this month, Iconic Equities and Leste Real Estate announced a partnership that aims to acquire $400M in IOS properties over the next two years.

The partnership recently bought a 5-acre IOS property in Coral Springs, FL, says it has identified a “substantial pipeline of IOS facilities for acquisition in major metropolitan areas and port markets across the US,” GlobeSt.com reported.

IOS sites have been deployed as vehicle parking sites for trucks and buses as well as outdoor storage of construction equipment. As the supply chain backlog has clogged numerous US ports, IOS properties have been deployed as pop-up container yards.

As the value of a diminishing number of IOS properties has increased, institutional investors increasingly are drawn to the opportunity presented by the fragmented market for IOS.

“They’re not creating more land for outside storage. In most cities, nobody wants to see more outside storage,” Rob Kossar, JLL vice chairman for the company’s industrial division in the Northeast, told GlobeSt.com earlier this year.

“(IOS) is zoned out everywhere, so wherever it exists, it’s super-valuable. That’s why institutional investors have suddenly woken up (to IOS).

The largest player in the IOS sector, Alterra, launched a $1.5B expansion this year to defend its hegemony, targeting IOS space from 5K to 100K SF on 2 to 30 acres, with deals ranging from $5M to $20M.

Zenith IOS, a platform aiming for low-coverage industrial for tenants seeking outdoor storage, formed a joint venture with JP Morgan Chase to acquire urban infill locations in major cities.