For the July Newsletter, I am going to check in on a deal we acquired in November 2024 and review why we pursued it in the first place and how it is performing today.
55 Industry Court, Troy, OH
The Situation
Last year, one of Flex’s manufacturing partners brought to our attention that their landlord would be interested in exiting their business and selling the building as well. The building in question, 55 Industry Court, is located in Troy, OH, and comprises two tenants occupying a total of 45,000 square feet. Flex was able to negotiate the purchase price of 55 Industry Court to $1.35M ($30 PSF) with the assumption that the building would be 42% occupied at the time of closing. The building's owner wanted to close by the end of the year.
Building Characteristics
45,000 Square Feet
Tenants: Two (Manufacturing & Robotics)
Built: 1998
55 Industry Court Exterior
Why We Pursued This Asset
The reason we felt strongly that this would be a good asset to pursue was the market, property type, and property comparables.
Troy is located in the North Dayton submarket, an area with a strong manufacturing presence and significant ties to the automotive industry. The large employers in the area include Cloplay (Garage Doors), F&P America (Automotive), Honda, Hobart (Metal Supply), and ITW Food Equipment. Troy has developed along I-75, a significant economic vein in the US economy. Extending from Miami to Canada, with a more substantial impact on the Ohio region, I-75 allows direct access to the automotive markets of Michigan and the surrounding area.
55 Industry Court is well-suited for multiple types of manufacturing and warehouse users. The building has 18’ clear heights, heavy 480 power, 3 dock high doors, and one roll-up door, located within 1 mile of I-75 and only containing 15% office buildout.
Digging into the industrial real estate market nearby, we determined that the property was being acquired below the market purchase price of $50 PSF (Market) vs $30 PSF (Purchase), and there was 15% upside in the existing rents $5.00 PSF (Market) vs $4.35 PSF (In-Place). In addition to our own market survey, we consulted with local brokers to verify that they agreed with our assumptions and prepared them for the potential leasing assignment for the vacancy.
Before even running the financials for this property, the potent combination of market, lease ability, and upside compared to the market made us confident that we could create a business plan that would yield a solid return for our investors and appropriately account for the potential risks post-acquisition.
Downtown Troy, Ohio
The Underwriting
55 Industry Court, like every property we acquire, requires significant modeling to account for risk and also run scenarios for potential outcomes. Real estate business plans, like life, don’t abide by a strict plan, so it is best to be conservative and be pleasantly surprised by excellent outcomes rather than the inverse.
Below, I will outline the key assumptions and returns that we began this process with. I am going to focus on the vacancy assumption, exit cap rate, and returns. The key to this business plan is leasing the 25,900 SF vacant suite.
Note: Our underwriting includes significantly more detail than I have included below, but I wanted to stick to the highlights vs turning this newsletter into a small novel.
Assumptions
Returns
IRR: 28.09%
EM: 2.38
Year One Cash Return: 0% (Lease-up Period)
Sale
Sale Price: $54 PSF
Exit Cap Rate: 9.00%
Hold Period: Four Years
Vacancy (25,900 SF)
$4.00 PSF NNN
3% Annual Rental Bumps
$2.50 PSF Tenant Improvement Budget
12 months of downtime
Current Returns
After acquiring the asset in November of 2024, we executed a short-term sale-leaseback with the vacating tenant (25,900 SF Suite). During this period, a buyer was identified for the shuttering business, and we executed a five-year lease with the new tenant, allowing us to distribute cash in our first quarter, twelve months ahead of projection. Additionally, this new lease did not require a tenant improvement budget, and we were able to bolster the reserve we hold for the property.
Below, I have compared the underwriting assumptions above vs where we are today.
Leasing the space with no downtime and above the projected rents allowed us to increase the money distributed early in the hold period significantly and boosted the net operating income at exit which will produce a higher sale price based on the cap rate. If I have to criticize my underwriting, a 9.00% exit cap rate is likely overly conservative given the Dayton market, so this deal could potentially bring a higher return.
55 Industry Court Interior
Future Plans
This is an excellent start to the business plan, but again, in real estate business planning, it is unlikely things will hit exact assumptions. We are working to complete deferred maintenance on the HVAC and parking lot this year, in addition to the landscaping work we have already completed. Looking ahead, we will need to renew the existing lease for 19,100 SF in 2027 and will look to exit as our prepayment on the loan decreases.
55 Industry Court is a perfect example of the buildings we would like to acquire and improve, and I hope this provides a better insight into how we evaluate potential acquisition opportunities.
Reply to this email and let me know if there are any specific topics you would like to hear about next. Thank you for reading, and stay tuned for the August Focus!
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