Short-Term IRR Misses Long-Term Potential
Chris Ramsey analyzed IRR vs. long-hold in industrial RE, arguing short-term IRR optimizes capital velocity but misses rent reset potential over cycles. Long holds capture compounding from scarcity/inflation, ideal for private owners without fund constraints—key for structuring deals and retention.
Chris Ramsey, a commercial broker with TCI Group, highlights the importance of long-term strategies in industrial real estate. He emphasizes that while short-term Internal Rate of Return (IRR) focuses on quick capital turnover, it often overlooks the significant compounding potential from rent resets and inflation over extended periods. The current market presents a unique opportunity, with many industrial leases signed five years ago now significantly below current rates. Resetting these rents can substantially boost Net Operating Income (NOI), making industrial real estate a strong hedge against inflation. Landlords in Greater Los Angeles are showing flexibility on starting rents and free months, while holding firm on annual escalations. Savvy investors are focusing on Class A industrial assets with modern specifications like high clear heights and advanced fire suppression systems. Demand isn't just from e-commerce anymore; nearshoring trends are driving manufacturers to seek space closer to home, creating a multiplier effect for logistics needs. While national vacancy rates have risen to around 6.0%, a supply shortage is expected by late 2026 due to decreased construction starts. This anticipated tightening will likely drive rent growth and asset values upward, favoring landlords with expiring leases.
