What Can an Eight-Year NNN Lease Tell Us About a Jacksonville IOS Property?

An industrial outdoor storage property may look relatively simple from the outside. Operationally, it can be anything but.

For an IOS owner, rent and lease term are only part of the equation. The property also needs to support how the tenant actually uses the site, including the movement and storage of vehicles, equipment and materials.

A strong lease begins with understanding the operation behind it.

A recent Jacksonville Westside transaction provides a useful example.

Custom Ecology Inc. signed an eight-year NNN lease to remain at its existing industrial outdoor storage location after the property changed ownership. Mike Salik, CCIM represented the landlord in the transaction, which was recently covered by the Jacksonville Business Journal.

Beyond the transaction itself is a broader industrial real estate question:

What makes an IOS property work for the operation using it?

The Tenant's Operation Defines What the Yard Needs to Do

Industrial outdoor storage is often defined by what happens outside the building. For many users, the functionality of the yard can be just as important as any structure on the property.

A fleet or waste operation, for example, may need sufficient room for trucks to enter, maneuver, stage and exit efficiently. Surface conditions, drainage, security and usable yard capacity may also affect how well the property supports the operation.

The acreage tells you how much land is there. It doesn't necessarily tell you how much of it works for the business.

Depending on the operation, IOS owners and users may need to evaluate::

• Truck circulation: Look at how trucks enter, turn, and leave without blocking each other or backing onto a public road.

• Yard capacity: Count how many trucks and how much equipment fit once staging and turning space come out of the total acreage.

• Surface and drainage: Confirm the paving or base can handle the loads and shed water during storm season.

• Power and security: Check whether lighting, fencing, and gate controls match the way the tenant works.
  

For industrial owners and users, these considerations help move the analysis beyond asking what a property costs to asking what the property can actually support.

Business first. Real estate second

What Should an Owner Consider With a Long-Term Lease?

An eight-year lease creates a long-term relationship between the property, tenant and ownership strategy.

For an owner, the appropriate lease structure depends on the objectives for the asset. One owner may prioritize predictable income. Another may anticipate holding through multiple market cycles. Another may ultimately position the property for sale.

Those objectives can influence decisions involving lease term, escalations, renewal options, maintenance responsibilities and capital improvements.

Check these items before signing:

• Maintenance duty: Spell out who repairs paving, drainage, and stormwater features, and to what standard, so wear does not turn into a dispute in year six.

• Capital improvements: Decide who pays for yard upgrades and what happens to them when the lease ends.

• Environmental baseline: Record the condition of the ground at move-in. A dated record gives both sides a fair point of comparison at move-out.

• Use and assignment: Define the allowed use and who may take over the lease if the tenant's business changes.
  

Scarcity Buys Time, Not Certainty

The Jacksonville Business Journal characterized IOS properties as increasingly scarce in markets such as Jacksonville.

Scarcity can influence the competitive environment, but it doesn't eliminate property-level analysis.

Zoning, usable acreage, access, yard condition, configuration and compatibility with the operation can still materially affect how an IOS property competes.

Scarcity creates context. It doesn't replace due diligence.

Mike's Market Truth

An IOS property shouldn't be evaluated simply by acreage, location or asking rent.

The real question is what the site allows the operation to do.

Truck circulation, usable yard area, zoning, access, surface conditions, security and lease structure can each influence whether the property works for the user and the owner.

The recent eight-year Jacksonville Westside lease is a transaction. The larger lesson is operational.

Understand the business first. Then determine whether the real estate supports it. Read more