601 Harbor: Barriers to Entry Where it Matters Most

Barriers to entry aren’t just buzz words, it’s real when it comes to industrial outdoor storage (IOS). IOS isn’t hard because of construction costs or competition. It’s hard because, in most major markets, you simply can’t build it anymore.

Let’s use our upcoming deal in West Sacramento as an example. As a major logistics and distribution hub for Northern California, demand for IOS is driven by construction, utilities, transportation, and infrastructure-related users. Yet zoning that permits outdoor storage is extremely limited and new entitlements are nearly impossible to secure. In many submarkets, there are effectively no viable alternatives for tenants that need outdoor space.

While general industrial vacancy in the 3-mile radius of our target acquisition is 5.9%, the vacancy rate is 1.9% for sites with buildings less than 10,000 sf and excess outdoor storage (aka IOS). Sites zoned for outdoor storage and trailer staging are rare in West Sacramento, making alternative sites difficult for an operator to source. The last piece of heavy industrial land in the immediate area was just purchased by an owner user.

It’s not just about the location or the tenant demand… it’s about scarcity. When zoning creates a hard stop on new supply, existing assets benefit from pricing power, long-term relevance, and durable cash flow. In IOS, zoning isn’t a footnote in the underwriting. It is a critical part of the investment thesis.

The subject property we are looking to acquire has two small office buildings totaling 1,800 sf and 4 acres of excess yard. The opportunity was sourced through a strong broker relationship and our persistence in getting the price down to where it made sense. The asking price for this property gradually dropped from $5.35M to $4.8M, then to $3.5M, then finally to the sale price. We anticipate acquiring the site for $3,175,000 ($17/SF), representing a significant discount to comparable IOS transactions in West Sacramento. The current tenant expires in December and has already vacated. Our business plan will be to improve the parking lot (crack fill and seal coating) and lease out the site with a 3-5 year term. Anticipated returns are 20% net to LPs and a 1.86x net equity multiple with favorable anticipated bonus depreciation (still completing preliminary cost segregation analysis).

And in markets like Sacramento, where “you can’t build another one,” that moat matters more than ever. Please feel free to reach out if our upcoming offering in Sacramento is of interest.