How to Manage an Industrial Property? Key Things to Keep in Mind

Commercial Real Estate Investing From A-Z

How to manage an industrial portfolio? How to compensate managers? What are the key things to keep in mind? Chad Griffiths, industrial investor and Partner at NAI Commercial Real Estate, shares his insights.

Read this entire episode here: https://tinyurl.com/mr2ch5x2

How do you manage an industrial portfolio?

I have a property that we bought two years ago, it's a $3 million building and there’s a single tenant in there, a fortune 1000 tenant that occupies the building of a manufacturing facility. A $3M multi-family building by comparison, has maybe 20 units and it’s much more management intensive. The industrial you have one tenant, the multi-family you have 20. The way our lease is structured is NNN: the tenant is responsible for paying all the operating costs on the property. Instead of them calling us for every little thing that goes wrong, they just fix it. In two years, I’ve been to that property a couple of times, my partner and I self-manage that one. We also have other properties with more tenants, and we have property managers in those ones. Even though it’s a lot easier to manage from a time, energy, focus standpoint, there are times when I think you do want to have a professional property manager.

When should you get an onsite manager, and how often do they need to go there?

The deciding factor for us is largely down to how complex the situation gets. Even though you’re not dealing with the same amount of tenants, things come up. The scale of having 10 tenants vs one tenant, where you have one point of contact, it’s very easy for us to follow up with a general manager, they take care of most of the things that go wrong. If there was something like an electrical issue, then we get involved and have a contractor come to address it. But it’s just much less time intensive to look after one tenant. The one where we have 10 tenants, there’s smaller tenants, they need a little bit more hand holding, because they might not know how everything works. There’s also a common area, so anytime you’re dealing with tenants having to interact, then you potentially have issues.

The tenants pay base or net rent to the landlord, they also pay for the operating level expenses of the property. That’s usually property taxes, building insurance, common area maintenance, landscaping costs, etc, and that’s a budget. When a landlord gives a tenant their numbers in advance at the beginning of the year, the base rent is contractually agreed upon, that could be $10 a square foot for the whole term of the lease, there could be escalations, but that’s already known. Whereas the operating costs, all the landlord can do at the beginning of the year is an estimate. At the end of the year, they have to reconcile all those bills, this is how much we actually paid on all these things, add up how much they paid out of how much they collected, and they either need to give an invoice for any amount that is still owing, or they give a credit or refund back to the tenants. Because that operating cost is collected in advance, when the time comes to reconcile and you either have to send an invoice or send a credit, no tenant will ever complain about getting a check in the mail. But a tenant will not be happy if they get a $10,000 invoice at the end of the year because it was poorly projected at the beginning.

Chad Griffiths

www.youtube.com/@industrialize

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