Rapid Growth and Lucrative Investment Opportunities
The industrial outdoor storage (IOS) subsector has seen remarkable growth in recent years, becoming a valued market worth at least $200 billion. This has caught the attention of institutional investors, real estate firms, and development companies specializing in IOS operations.
Key players in the IOS market, such as Industrial Outdoor Ventures (IOV), Zenith IOS, and Alterra IOS, have emerged and made significant investments. IOV, for example, completed 30 transactions in 2022, totaling nearly $300 million and bringing their assets under management to approximately $800 million. Their diverse portfolio spans 18 markets, comprising nearly 80 assets nationwide.
Industrial outdoor storage properties are open lots primarily used for storing large equipment, vehicles, and materials. They serve various purposes, including truck terminals, trailer and container storage, and construction or heavy equipment yards. The demand for industrial storage space has surged during the pandemic, driven by the need for last-mile storage and delivery locations. The rise in fuel costs has also prompted companies to consolidate operations, making infill IOS sites highly desirable.
Despite the rapid growth, the IOS market remains fragmented, with over half of the properties still owned by private investors and small operators. This fragmentation creates opportunities for those interested in IOS deals from smaller owners, as there is potential for increased rental income and net operating profit.
Investor interest in the IOS market stems from strong operating performance, favorable long-term supply and demand dynamics, and minimal capital expenditure requirements. The limited supply of IOS properties is a result of municipalities hesitating to designate new land for outdoor storage. Furthermore, the strategic location of IOS sites near major metropolitan areas contributes to landlords' pricing power and attractive risk-adjusted returns.
Despite economic uncertainty and rising interest rates, demand and leasing for IOS properties remain robust, with a recent increase in acquisition activity. IOS industry experts believe the sector is somewhat insulated from recessionary risks due to ongoing tenant demand and the ability to purchase properties with cash or finance them after closing. The low capital expenditure nature of the IOS business, coupled with the creditworthiness of national tenants, further fuels institutional investors' interest.
Companies like Zenith IOS and Alterra IOS are actively seeking acquisitions and expanding their portfolios. Zenith IOS, in partnership with J.P. Morgan Global Alternatives, has already invested over $350 million and aims to build a national IOS portfolio valued at $1 billion. Alterra IOS, with a presence in over 30 states and more than 185 properties, is seeking to raise $750 million in its latest IOS fund.
New entrants, like Green Point Partners, are also entering the IOS market. Green Point Partners recently launched a dedicated $500 million truck and trailer IOS platform through an investment in Semi-Stow, a semi-truck parking and trailer storage operator. This investment will support the expansion of Semi-Stow and the acquisition of a portfolio of semi-truck parking and trailer storage assets across the United States.
