Weighing a 12 year absolute net industrial deal at 6.25 against a shallow bay park at 8.1 for the same check

The goal for a lot of 1031 money is income without a second job, so worth saying the obvious thing about the shallow bay park. Five tenants averaging 2.5 years remaining, two of them month to month, means real personal involvement in leasing decisions within a year, third party manager or not. Managers don't negotiate renewals on their own, they hand over a proposal and wait. If the point of the money is to stop working, the extra 185 basis points on that deal is a wage, not a return.

Both are industrial only in the sense that they both have loading doors. Deal A is a credit and residual bet. You're buying 12 years of contractual income from a tenant whose financials you haven't seen, in a box with cranes and heavy power that a distributor would not pay extra for. Ask what the space releases for dark. If comparable 22 to 28 foot clear space in that submarket asks $5.00 net and your in-place rent is $4.38, the release risk is modest. If the building only works for a fabricator and there are two of those inside 50 miles, your residual is land plus a discount for stripping specialized improvements.

Deal B is a management job priced 185 basis points wider. Five tenants on 2.5 year average terms means you re-lease roughly two units a year, and shallow bay leasing costs real money in commissions and small tenant improvements. Underwrite 7 to 10 percent economic vacancy and a management fee even if you self-manage, because a future buyer will.

Sector conditions favor the shallow bay side. Vacancy was near 6.7 percent at the end of 2025 and is expected to peak around mid-2026 before tightening, construction has fallen sharply since 2022, and 2026 absorption forecasts point substantially higher. Infill small bay tends to keep pricing power in that setup.

The answer turns on one number you don't have, the dark value of the manufacturing box. Have a leasing broker quote you a release rent and a downtime estimate in writing before you compare cap rates. Confirm loan terms and any tenant-credit conditions with your lender in writing as well, since quotes move week to week.

Absolute net was a new term for me, so here's my understanding of it. In deal A the tenant pays taxes, insurance, maintenance, and also replaces the roof and repairs the structure, so the landlord's only real job is collecting. If that's right, then the 6.25 percent is closer to a real 6.25 percent than deal B's 8.1 percent is to a real 8.1, because B has expenses that will surprise you. Is the roof and structure language actually in the lease, or is that how the broker described it? Those have been different documents every time I've read one in this forum.

Look up the zoning on both before falling in love with either. A crane served manufacturing building on industrial zoned land with 1,200 amp three phase service is a much better asset than the lease suggests, because power capacity and heavy zoning are the constraint in most markets right now, and the data center adjacent demand people keep talking about is really a fight over power and dirt. If that parcel has room and the utility has capacity at the transformer, the residual conversation changes entirely. Zoning and permitted use vary by jurisdiction, so read the actual ordinance instead of the listing sheet, and ask the utility for a capacity letter.

Five tenants, two month to month. Have you seen the actual signed leases and the estoppels, or just a rent roll spreadsheet? Rent rolls lie by omission. On my rental the previous owner's roll didn't mention a verbal agreement about the garage, and I'd rather learn that from your deal than mine again.

On deal B, the item that gets underpriced is the leasing broker relationship. Small bay industrial in most metros is controlled by two or three brokers who know every tenant in a 5 mile radius, and an out-of-area owner without one of them carries vacancy 90 days longer than the market does. Interview whoever leases that park now before you decide, because if they stay on, B's numbers hold better than the spreadsheet suggests. If they do not, you are paying full price for a park you cannot lease.

I hold land for a decade at a time and I still wouldn't take A on those terms. Twelve years feels like forever until you notice that the entity guarantee is the whole security and the sponsor has told you in advance there's no parent support. A private equity owned parts maker in year seven of a downturn can hand you back the building through a bankruptcy court and there's nothing in the lease that stops it. If you want A, get the price to a number that works on land and shell value, and treat the 12 years as upside. My rule after two decades is that the residual is the only thing I actually own, everything else is a promise from a stranger.