IOS SECTOR ON THE RISE: INSTITUTIONAL CAPITAL FUELS GROWTH

The industrial outdoor storage (IOS) sector is quickly becoming a significant force in the U.S. industrial real estate market. Once a domain primarily managed by individual investors, the sector is now witnessing rapid institutionalization. Though still in its nascent stages, IOS is gaining recognition for its essential role in the broader industrial supply chain.

According to Ben Atkins and Daniel Laub, co-founders and managers of Zenith, the IOS market is "still in its early innings" when it comes to widespread adoption and institutionalization. Recently, Zenith made headlines by closing its second IOS joint venture with institutional investors advised by J.P. Morgan Asset Management. This venture is set to build on the success of their first, with plans to acquire approximately $700 million worth of IOS sites across the United States. Together, these ventures will create one of the largest institutional-quality IOS portfolios in the country, with a combined gross asset value exceeding $1.5 billion, as reported by IREI Newsline.

"The overwhelming majority of IOS assets are owned by non-institutional owner-users or one-off investors. We believe that IOS is a significant part of the overall industrial market and is a key component in the greater industrial supply chain," stated Atkins and Laub. As supply chains become more intricate, the demand for outdoor storage of equipment, vehicles, and materials is rising, underscoring the growing need for IOS properties.

The founders noted that as more institutions recognize the value of IOS, the sector's liquidity and the availability of debt financing have improved. This recognition has spurred their decision to pursue a second joint venture, reinforcing Zenith's commitment to maintaining its "first mover advantage" and leveraging existing relationships to identify promising investment opportunities nationwide.

However, investing in this emerging sector isn't without challenges. Key risks include zoning restrictions, environmental regulations, and navigating complex municipal approval processes. These hurdles can delay development and complicate transactions, but they can be mitigated by collaborating with experienced third parties who understand the intricacies of these regulatory frameworks.

"Zoning restrictions, environmental regulations, and municipal approval processes remain the primary risks associated with investing in IOS," acknowledged Zenith. They emphasized that expertise and diligence are crucial for overcoming these challenges and successfully scaling IOS portfolios.

Looking ahead, Zenith anticipates that the institutionalization and investment in IOS will continue to grow, leading to increased competition and collaboration within the sector. "In time, we expect to see larger portfolio transactions as more institutions enter the space," said Zenith's leadership. This evolution will drive both competition and opportunity, ultimately shaping the future of the IOS sector.

This article highlights the promising trajectory of the IOS sector as it attracts significant institutional capital, signaling a new era of growth and development in industrial outdoor storage.

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