How to Evaluate an Industrial Real Estate Deal as a Limited Partner

Guest Post By Chad Griffiths, SIOR | Author of Industrialize: The Insider’s Guide to Industrial Real Estate

If your inbox is anything like mine, you’re getting flooded with industrial offerings (like this one). Yes, the tailwinds are strong, but like with most things, there are levels to understanding the game.

Today, I’m bringing in a specialist - Chad Griffiths. With two decades in the trenches as a broker, investor, and educator, Chad knows industrial real estate from every angle.

In this article, Chad walks us through the most important aspects of industrial deals from the investor perspective, with no fluff. Whether you’re reviewing a deal deck or committing capital to a fund, this will help you separate a solid industrial play from one that just sounds good on paper.

And if you’d like to learn how to use AI to evaluate industrial deals, read this:

How to Use AI to Evaluate Industrial Real Estate Deals

Let’s get into it.
-Leyla

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Industrial real estate has gone from a niche asset class to one of the most sought-after segments in commercial property investing. As e-commerce, logistics, manufacturing, and supply chain resilience have taken center stage, capital has followed. For limited partners (LPs), this presents both opportunity and risk, especially in today’s evolving market. Whether you’re allocating capital into a private industrial fund or vetting a sponsor’s individual deal, this article offers a practical framework for evaluating industrial opportunities with clarity and confidence.

1. Understand the Subtype: Not All Industrial Is Created Equal

Before diving into spreadsheets or IRRs, step back and ask: What type of industrial asset is this?

There are four main subtypes:

1. Warehouse/Distribution Centers – Often modern, high-clear structures with dock loading and highway proximity. Most closely tied to e-commerce and logistics.

2. Manufacturing Facilities – Power-heavy, sometimes build-to-suit. Often more specialized and illiquid.

3. Flex Industrial – Part-office, part-industrial, often used by light manufacturers or service providers.

4. IOS (Industrial Outdoor Storage) – Low-coverage sites for equipment, vehicles, or container storage. Often misunderstood, but in demand in land-constrained markets.

📌 Investor Tip: Each subtype has different lease structures, tenant expectations, and market dynamics.

2. Location Still Reigns Supreme (But Zoning and Access Are Kingmakers)

It’s not enough to say “Houston is a hot market.” Dig deeper.

• Zoning: What other uses are permitted? Can it pose a problem if it becomes vacant? Are there restrictions on hours, noise, or outdoor storage?

• Ingress/Egress: Can trucks enter and exit easily?

• Labor Market: Can a tenant realistically staff the building?

📌 Investor Tip: Industrial tenants prioritize efficiency. A Class B building in a Class A location often outperforms a shiny new one on the fringe.

3. Scrutinize the Lease Structure: Triple Net Isn’t Always So Simple

Most industrial deals advertise NNN (Triple Net) leases, but terms can vary:

• Are capital expenditures truly the tenant’s responsibility?

• Does the lease include annual rent escalations?

• What are the renewal rights?

• Are there caps on rent resets?

• Also: How long is the remaining lease term? A national tenant sounds great—until you realize they only have 12 months left.

📌 Investor Tip: Ask for the actual lease, or at minimum, a clear summary of its terms (often called a lease abstract).

4. Evaluate the Physical Infrastructure (Especially Power and Loading)

This is where many LPs skip a layer of diligence, but shouldn't.

Key factors to review:

• Power capacity (amperage and voltage)

• Number and type of dock doors

• Ceiling height (28–36' is standard)

• Column spacing and racking potential

• Sprinkler system installed

• Site coverage ratio (too low = inefficient; too high = no room for trucks).

📌 Investor Tip: An underpowered, low-clear building with no docks could sit vacant for years.

5. Assess the Market Dynamics Beyond Just Vacancy Rate

Too many deal decks rely on a single stat: “The market vacancy is 7.1%.”

You need to know more:

• Is there a supply glut coming?

• What’s the net absorption trend?

• Are tenants consolidating or expanding?

• Are institutional buyers active or pulling back?

📌 Investor Tip: In 2024, over 375 million square feet of industrial inventory hit the U.S. market. Know where your deal fits within that context.

6. Underwrite the Exit Conservatively

Cap rates compressed dramatically from 2019–2022, but that trend is reversing. With higher interest rates and softer demand, exit assumptions should reflect today’s market.

Questions to ask:

• What exit cap is used?

• Is it higher than the in-place cap?

• What’s the backup plan if cap rates expand further?

• Are rent growth projections reasonable?

📌 Investor Tip: If the business plan relies on a short-term flip, be cautious. Industrial is often better suited for long-term holds.

7. Know the Sponsor—and Their Operational Capability

Even the best asset can underperform in the wrong hands.

• Has the sponsor operated similar industrial properties?

• Do they manage internally or outsource everything?

• What’s their plan if the tenant vacates early?

📌 Investor Tip: You’re investing in execution, not just square footage.

8. Red Flags to Watch For

🚩Vague lease terms.
🚩Reliance on aggressive rent growth.
🚩Older assets in oversupplied markets.
🚩Functional obsolescence not addressed.
🚩Sponsor lacks industrial experience.
🚩Dismissive responses to zoning or power questions.

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Key Takeaways for LPs

✔️ Understand the industrial subtype.

✔️ Evaluate location beyond the ZIP code.

✔️ Scrutinize lease terms and infrastructure.

✔️ Vet the sponsor’s experience.

✔️ Underwrite conservatively.

Industrial real estate continues to offer compelling fundamentals, but as an LP, your edge lies in asking the right questions and thinking like an operator, not just a passive capital partner.

Want to go deeper?
My book Industrialize: The Insider’s Guide to Industrial Real Estate is designed to help both new and experienced investors decode this asset class from the inside out. Check it out at: mybook.to/industrialize

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About the author:

Chad Griffiths is an industrial real estate expert with two decades of experience as a broker, investor, and thought leader. He hosts a widely acclaimed industrial real estate podcast, regularly featuring conversations with prominent industry leaders. Chad has been a featured guest on over 75 podcasts and is frequently invited to speak at universities, professional organizations, and industry conferences across North America. Chad has an MBA, a Diploma in Urban Land Economics alongside both the prestigious SIOR and CCIM designations, underscoring his commitment to excellence in the field of industrial real estate.

Chad can be reached at chad@industrialize.com.