Unlocking Value: The Dynamics of Industrial Outdoor Storage Acquisitions and Leasing

Profiling a growing trend in the DMV commercial sector

 

By Brian D. Kotzker, Partner, Selzer Gurvitch Rabin Wertheimer & Polott, P.C.

In the ever-evolving DMV real estate landscape, industrial outdoor storage (“IOS”) has emerged as a lucrative sector. Driven by a nationwide, growing demand for warehousing, distribution, contractor equipment yards, and vehicle fleet parking facilities, IOS provides businesses with the flexibility to expand in profitable areas. As businesses seek to optimize supply chains and accommodate the  market’s increase in e-commerce, the demand for accessible, strategically located IOS facilities has grown accordingly.

Our law firm is well-versed in the unique intricacies of this dynamic sector. We represent well-funded investors and handle numerous acquisitions, debt and equity financing, dispositions, and IOS leases in the DMV.

Based on our experience, here are some things to keep in mind:

IOS encompasses a wide range of properties, including industrial lots, open parking lots, industrial warehouse and flex spaces, and storage yards, which are typically located on the outskirts of urban business and residential areas, but in close proximity to major highways, airports and rail facilities. These types of properties were generally viewed by many as the “ugly ducklings” of commercial real estate, but they have become more attractive to savvy real estate investors.

WHAT TO KNOW BEFORE PULLING THE TRIGGER ON THAT IOS DEAL

• There are various regulatory and zoning requirements governing IOS properties. Make sure to consult with someone well-experienced in this area.
• Zoning and use regulations vary by jurisdiction, and generally dictate permissible land uses, building setbacks, and height and other restrictions. For example, properties located near military or civilian airports, no matter how large or small, are often encumbered by building height restrictions contained in recorded aviation “glide path” easements.
• If the target property is located within an industrial park, you should review any applicable binding covenants, conditions, and restrictions, and consider their impact on your potential uses of the property.

ENVIRONMENTAL RISK MITIGATION IS A PARAMOUNT CONSIDERATION FOR A POTENTIAL IOS DEAL

• There is a strong likelihood that the IOS property has, in the past, been utilized for a “less than clean” purpose, such as a manufacturing site, fueling facility, agriculture (involving fertilizers and pest control chemicals), automotive repair or junk yard. Accordingly, there is a high likelihood of known and unknown environmental contamination. Make sure to thoroughly perform environmental due diligence before concluding an IOS site transaction (including physical inspections, environmental assessments, and operational analysis).
• Although vigilant environmental testing and remediation can mitigate the risk to a buyer, be aware that there is always an inherent amount of exposure to third party or governmental claims.
• In order to allow for the timely completion of a Phase I study (visual site inspection and public records examination), and if necessary, Phase II study (invasive environmental testing and laboratory analysis), acquisition contracts for IOS sites should include sufficiently long feasibility periods.
• Seller representations and warranties, even if limited to matters actually known to the seller, should be as detailed and comprehensive as possible. Whenever possible, post-closing survival of seller warranties and representations should be sought.

In today’s dynamic real estate market, IOS represents a compelling investment opportunity, driven by ever-evolving business needs.  Engaging experienced legal counsel prior to entering into a transaction proposal letter, and certainly before concluding a binding contract, can help you to better understand market dynamics, navigate regulatory considerations, assess financing opportunities and mitigate the risks associated with IOS transactions.

To learn more about how our attorneys can help, please contact Brian D. Kotzker, Attorney at Law, at bkotzker@sgrwlaw.com or (301) 634-3138.