A case worth studying: an older warehouse bought cheap that sat empty eleven months

The clear height detail is what stops it. Eighteen feet was knowable before closing. At what point in the process does actual local tenant demand get checked? Is that a call made after closing, or does $52 a foot get assumed to solve for it on its own?

Your math already tells you the answer, so I'll put a frame on it that generalizes.

Vacant older industrial is a two variable problem: months of downtime and dollars per foot to make the building leasable. You solved for price and let the other two float. At 31,000 feet, every month vacant cost you roughly $11,900 in carry by your own numbers, and the $118,000 of work was another eight and a half months of stabilized NOI. Twelve months down plus that spend is about $260,000, which is $8.40 a foot. That's the number that should have come off your bid.

On the market context: industrial vacancy sat around 6.7 percent at the end of 2025 after supply briefly ran ahead of demand, and it's expected to peak around mid-2026 before tightening. Construction starts have fallen sharply, down roughly 63 percent since 2022 by one measure, and net absorption forecasts for 2026 point toward something like 220 million square feet on reshoring, manufacturing and data-center-adjacent demand. That's a constructive backdrop. It does not lift a 1979 building with 18 foot clear and no trailer parking, because tenant behavior in this cycle is a flight to quality. Modern, well located logistics space leases at rent. Commodity space leases at price and location.

Which means your outcome depended on one assumption: that the discount to replacement cost was compensation for physical obsolescence rather than a reflection of it. At $52 a foot against $130 new, you were paid about $78 a foot to accept a building that can't serve a racked distribution user. Your realized cost of curing what could be cured was $8.40. The uncurable part, clear height and the yard, is permanent, and it sets your tenant pool for as long as you own it.

For the next one, get two independent leasing opinions on rate and downtime in writing before you're hard on deposit.

Eleven months of carrying an empty building with nothing coming in is exactly the scenario worth underwriting against up front. Between that and a 7.5 cap leased building, the leased asset is the one that lets an investor sleep.

The sprinkler quote at $196,000 stands out. On a 31,000 foot building that's over six dollars a foot, which reads high unless the water service itself needed upsizing. Did the quote include a new fire pump or a tap upgrade? Owners often get one number, decide the whole path is closed, and never learn that most of the cost was one line item that could have been negotiated with the tenant over.

The part worth fighting over is four months free on a five year lease. That's 6.7 percent of the term given away at the front, especially painful after eleven months of vacancy already put the landlord under pressure. Whether the free rent is gross or net matters, and so does whether there's a burn-off clause that repays it if the tenant defaults in year two. On a first-generation tenant in an older building, unamortized concessions with no recapture language are where the real loss tends to show up later, quite apart from the rate achieved.

Take the all in cost against stabilized NOI here: 1,861,000 against 167,400 is a 9.0 yield. Add reserves at 0.20 a foot and it settles closer to 8.6. Now underwrite the exit. A buyer looking at this asset in year four sees a single tenant fabricator, 18 foot clear, one year of term left, and prices it on a vacant basis assuming the same downtime the original buyer just lived through. That points to a resale bid somewhere around 55 to 65 a foot, call it 1.9M, which means the holding period's cash flow is effectively the whole return. That can still be a fine outcome, it is just a cash flow deal wearing an appreciation deal's clothes. The question worth asking before buying anything like this is whether the resale was underwritten on a vacant basis from the start.

Genuine question from outside the deal side: who actually tells you what local tenants need at 18 foot clear? Is that a leasing broker who specializes in industrial, or do you get better information from the tenants themselves?

@nataliehsu, industrial leasing brokers know it, and so do the local dock door and racking contractors, because they quote the buildouts. The trick is asking a broker who doesn't have the listing yet. Their answer changes once they want it.

Worth pushing back a little on framing a case like this as a loss. An owner sitting at an 8.6 yield on a building he controls, with a tenant who just spent money moving fabrication equipment in and will not want to move again cheaply, is not in a bad spot. The mistake in a case like that is usually the bid, not the asset. Overpaying by 300,000 hurts once. Buying something unleasable hurts every year.

@brandonlee36, that's the distinction worth writing down. Sorting older industrial by clear height and yard depth alone gets most of the way there, and this thread confirms those are roughly the right two columns. Adding one for sprinkler type is worth doing too.

Four months in the model when the first two prospects both needed something the building physically couldn't do. That's the whole story, and it was true before the property was ever listed.

Worth asking what the lender did with an 11 month vacancy in a case like this. If it was bought with a bridge or short-term loan sized on stabilized income, was there an interest reserve? Most vacant-building loans either require a reserve funded at close or start testing coverage on a date certain, and if that date lands at month nine, the borrower can be in technical default while still touring prospects. Get the test dates in writing before signing, they vary a lot by lender.

34,000 square foot lot on a 31,000 foot building means the site coverage is basically wall to wall. There's no version of that building with trailer parking, ever, unless a neighbor sells you dirt. Worth knowing whether that's even possible before the next one.

The parallel to small apartments is exact. Vacancy cost is the thing beginners model as a percentage and experienced operators model as a number of months times a specific dollar figure. Eleven times $11,900 is a sentence, 8 percent vacancy is a decoration.

@carlos_nunez, the carry number is the useful piece here. A downtime line modeled as a percentage hides the real cost. Restate it in months and dollars instead, and it kills about half the deals on a typical underwriting sheet, which is the point.