Is there a clear height below which you just won't buy, or does location override the spec every time?

Question

I've been reading deal memos to understand how private money actually sizes industrial risk, and the same argument keeps showing up in the risk sections without ever getting resolved.

One camp draws a hard line on the building spec. Anything under 24 feet of clear height can't serve a modern distribution tenant, so you're renting to local users at local rents forever, and you should treat it as a small business landlord problem rather than a logistics investment. They'll point out that the flight to quality this cycle has been very specific, with modern well located space leasing strongly while older commodity space competes on price. You can't add clear height. It's the one thing money doesn't fix.

The other camp says location decides everything and the spec is a detail. A 20 foot building on an infill site four minutes from a dense delivery area has a tenant pool of contractors, service companies, last-mile users and light manufacturers who never needed 36 feet in the first place, and no one can build a competing box there because the land is gone. Meanwhile a 36 foot building on a corridor with endless entitled dirt gets undercut by whatever opens next year.

I can argue both. The spec camp has the cleaner rule and rules are useful when you're passive. The location camp has the better answer to the question of who competes with you.

So: do you carry a spec floor you won't go below, and if so where is it?

omar_haddad · Accepted Answer

I've priced raising clear height twice and walked away twice, so let me kill that option first and then answer you.

To gain usable height in an existing building you're either lifting the roof structure or lowering the floor. Lifting means new columns or column extensions, re-engineering the roof deck and bracing, redoing the sprinkler layout because the heads move, redoing lighting, and new wall panels or infill above the old top of wall. On a 40,000 foot building the numbers I got were north of $45 a foot and the schedule was nine months with the building dark. New construction was $130. Lowering the floor means excavating inside a building with existing footings, which is a conversation about underpinning that ends with everyone laughing. So yes, clear height is permanent. Anyone telling you otherwise hasn't gotten a structural engineer's number.

Where I land: I don't carry a height floor, I carry a tenant pool floor. Before I buy I write down how many businesses within 20 miles could actually use the building as it sits, and if I can't get to a plausible fifteen I don't buy it. That test kills 18 foot buildings on greenfield corridors and it passes 20 foot infill buildings with a fenced yard, which matches what I've seen happen in the market.

One thing the spec camp gets right that the location camp underplays. Cheap fixes still cost real money on old buildings. Dock levelers, three phase power, sprinkler conversion, LED, ADA restrooms when you split a unit. On my last older building that stack was $118,000 on 31,000 feet before a tenant moved in. Budget it whether or not the location is bulletproof, because scope creep on an industrial retrofit runs the same way it does on a house.

Is there a clear height below which you just won't buy, or does location override the spec every time?

1 reply