BREAKING DOWN THE DFW IOS MARKET

Q & A WITH DAVID GUINN

What is the state of play within the DFW IOS market?

Everything is bigger in Texas and that includes the demand for functional and infill IOS sites across the DFW metroplex. There is an extraordinary amount of capital available right now for IOS, and demand in the DFW MSA has reached unprecedented levels. New investors are noticing the extreme success of early entrants into the market, such as Triten, Zenith, IOV, Alterra, Imperium, and Ambient.

These achievements, comps, and data points that are available are helping set the stage for others, driving growth in the overall market. Investors are largely seeking similar opportunities—properties with a 6-month to 1-year remaining WALT or sale - leaseback agreements at below-market rents, and the solving for a 7.5-8% yield on cost. Income is attractive, but basis is still paramount.

In Q2-Q4 of last year, there was a disconnect between owner-users and investors due to emotional uncertainty surrounding the elections and decision-making delays. However, we expect that activity to significantly increase in Q1 2025.

How have rents moved this past year?

It's been fascinating to observe the market, and I like to categorize IOS into four key segments:

1.     Dock-High Industrial with Significant Outdoor Storage – A prime example is ABC Supply. Rents in this category have surged due to the booming construction activity and limited new construction supply, primarily driven by high replacement costs.

2.     Mid-Tier Maintenance Facilities – Examples include truckload carriers and equipment rental companies, like Knight Swift and United Rentals. Rents in this category are largely determined by functionality and location. They have seen significant increases in infill markets, but have plateaued in outlying areas, unless a company has secured a specific contract in that region and the asset itself is highly functional.

3.     Trailer Storage Yards – These are typically heavily improved land without buildings or only modular offices (examples -  managed truck parking, container storage, or trailer parking.) While freight demand is growing, it remains relatively low, meaning most leases in this category are short-term. However, we've recently seen a notable rise in demand from utility contractors and electrical companies. With the rapid growth of data centers in Texas, these contractors—who supply generators, electrical equipment, and materials—have been actively seeking secure storage for their assets in proximity to their work sites.

4.     Cross-Dock LTL’s – Often referred to by Tom Barbera as the "gateway drug to institutional IOS," demand for cross-dock LTL facilities has remained steady.

In conclusion, rents are trending upward. However, when underwriting vacancy or adjusting to market rates, it’s essential to understand the profit margins, functionality, safety, and location needs of the companies you're targeting.

How do local municipalities view IOS uses these days - supportive or restrictive? Any examples?

I wish I could say things have improved, but the reality is that the situation remains restrictive. The DFW metroplex consists of over 100 different cities, each with its own set of permitted uses, zoning classifications, and future land use plans. Understanding these nuances is critical to identifying successful IOS sites. The suburban and urban housing markets in DFW have surged due to population growth and rising costs of living, and as these markets continue to expand, local municipalities are implementing more restrictive zoning in traditional industrial areas, limiting the operations of necessary "dirty uses."

👍️ Positive Example: A client from NYC approached the city of Grand Prairie proactively to obtain a Special Use Permit (SUP) for truck parking on a 35-acre paved lot. They took a thorough approach, conducting traffic studies, offering to make cosmetic improvements (such as installing a masonry wall), and addressing a poorly sloped access road that was a safety hazard. As a result, they successfully obtained their SUP and received full support from the city and its staff.

👎️ Negative Example: The city of Lewisville has imposed restrictions on all outdoor storage, requiring a special use permit (SUP) for any such activity. Even with an approved SUP, outdoor storage is limited to just 10% of the total building footprint.

Having a zoning consultant or civil engineer who is deeply familiar with the intricacies of each municipality is crucial for navigating these challenges and getting things done.  

Which submarkets show the most IOS activity? 

We are seeing significant activity in the East Hines Industrial submarket, particularly in the Northwest Highway/Walnut Hill area in Northwest Dallas, due to its heavy industrial zoning and proximity to key areas like DFW Airport, Irving, and Brookhollow. Additionally, the I-35 corridor in North Fort Worth and Denton is also experiencing increased interest.

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Which IOS type is most lacking? (e.g., truck terminals, contractor yards, cross-docks, etc.)

1.     Functional Mid-Tier Maintenance and Equipment Rental Facilities: These are in high demand near new residential developments, data centers, and spec developments. These sites are extremely rare, as they are almost never built speculatively, and the few that have been developed are leasing at record prices.

2.     Dock-High Industrial (North of 50,000 SF, with at least 5 acres of yard space): This specific category of IOS is what REITs and institutional investors are most likely to consider as "CORE+" in the industrial space. Major tenants in this category within DFW include ABC Supply, Beacon Roofing, SRS Distribution, Foundation Building Materials, and Builders First Source. When these leases expire, the market adjustments are substantial due to the limited supply of suitable alternatives. The demand for these assets from institutions is extremely high.

 What is the tenant mix between national users versus local SMBs?

While we don’t have precise figures, we estimate that national tenants occupy roughly 40% of IOS space, with local SMBs accounting for the remaining 60%. A notable trend locally is that only about 30% of IOS tenants are properly represented by tenant rep brokers. With 70% of the market lacking access to data platforms, it's crucial for property owners purchasing vacant land to engage brokers who have direct relationships with end users. This approach helps reduce vacancy periods and secure leases more efficiently.

Any notable transactions that you would like to share?

• Trive Capital acquired 15051 FAA Blvd, Fort Worth – 87,500 SF on 8.5 paved acres. The property is leased long-term on a NNN lease to Equipment Depot.

• Triten purchased 502 W Oakdale, Grand Prairie – a 41,304 SF building on 19.24 acres from Zachary Construction. The property is currently listed for lease with Davidson Bogel.

• 13119 Old Denton Drive, Fort Worth – a 38,999 SF shop and office space on 17.4 improved acres. This was a notable acquisition as it marked one of Hillwood’s first true IOS transactions in DFW.

• 4709 Lonestar Blvd, Fort Worth – 60,558 SF on 7.2 acres, fully leased to Alliance Concrete Piping at the time of sale. This property was sold to Ambient Capital through the Davidson Bogel Industrial team and NAI Robert Lynn.

• 2660 Market Street, Garland – 87,880 SF tilt building on 7.47 acres, 100% leased to ABC Supply. This property was sold to Alterra.

• 7400 Jack Newell Blvd, Fort Worth – 79,900 SF on 7.8 acres, 100% leased to ABC Supply. It was sold to Bridge Logistics. These two sales stand out due to their low entry cap rates, highlighting the high demand for such IOS sites across the U.S.

• 8904 S Freeway, Fort Worth – 56,192 SF on 6.36 acres, purchased by Zenith in December 2024, 100% leased to Silver Linings Collision Center at the time of sale.

Leases:

• 2500 Joe Ed Wallace, Hutchins – A fully paved 38-acre site spec-developed by JD Salazar at Champion and Timberhill. Manheim Auto signed a 5-year lease for the entire site, marking the largest IOS lease signed in DFW to date.

• 3500 Valley View Lane, Irving – 6,000 SF on 11 acres near DFW Airport. Leased to MEI Rigging with IOV as the landlord, completed by the DB2RE Industrial team.

• 1301 W Wintergreen Rd, Hutchins – A 6,200 SF spec-developed paved yard and shop on 5.2 acres by Mike Burney at Dry Port Capital. Leased to Standard Logistics on a 7-year deal at record pricing.

• 1301 E Wintergreen Rd, Hutchins – 21,000 SF tilt building with 20 oversized GL doors, spec-built by Provident. Leased to DLH Logistics at record pricing.

• 4405 Reese Drive, Irving – 15,899 SF on 3.03 acres, leased to Ansco Utilities. This lease represents the highest IOS lease comp in DFW history.

• 10606 Goodnight Lane, Dallas – 15,800 SF on 3.6 acres, fully leased to FMIIP Distribution. Landlord: Zenith.

• 2415 Cold Springs Rd, Fort Worth – 38,496 SF on 4.6 acres, leased to Taylor Sudden Service. Landlord: CanTex.

• 9773 Harry Hines Blvd, Dallas – 17,200 SF on 6 acres, leased to Greyhound Bus. Landlord: J Small Investments.

What is your forecast for IOS transactions/demand for the 2025?

We anticipate a significant increase in IOS transactions. Whether it's owner-operators looking to capitalize on sale-leaseback opportunities, investors seeking to better understand the national tenants in their portfolios and purchasing properties locally with those tenants in place, or investors who purchased deals in 2019 and are approaching the end of their investment cycles—there will be an abundance of opportunities to be had. I believe 2025 will bring the first true IOS portfolio in the DFW market, which will generate significant interest from institutions around the US.

Where I believe the most “juice” is for investors in DFW is in having a database for upcoming lease expirations on the most functional sites in the market, as well as historical comps from 2020-2021 to proactively approach owners & provide quick and innovative capital solutions. Owner users still have a lot of cash & typically don’t like paying rent – so you need to have flexibility with your capital partner in how you can structure transactions. We at Davidson Bogel are very optimistic going into 2025 and are extremely grateful for partners such as the IOS List to continue to help educate the market and make everyone better. Proverbs 27:17

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