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Build-to-Suit Industrial Real Estate: Mastering Tenant Capital Strategy with Joe Neckles · Industrial Advisors

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  We help them mitigate risk, right?
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  We can execute a guaranteed maximum price contract.
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  We can guarantee delivery and completion on a specific timeframe so that they
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  can plan their business and their requirements around that timeframe.
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  And so we take all of that work and risk, and we deliver a project to the tenant
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  in a risk-free and predictable manner.
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  Welcome to Industrial Advisors podcast.
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  We're live at IMC in Little Rock, Arkansas.
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  Kyle Bach is joining us on our team, and we have a great guest here,
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  Joe Nickols, who is with Fortress Investment Group and runs all of the
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  build-to-suit business for Fortress.
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  Is that right?
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  Correct.
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  Yeah.
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  So tell us a little bit about that role and kind of what you're doing,
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  and then we can dive into some of the build-to-suits and advantages
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  of doing it, uh, after that.
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  Perfect.
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  Thank you, Matt.
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  Thank you for having me and Kyle.
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  So Fortress is an alternative asset management firm based in New York City.
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  Been in business for over 20 years and diversified investment strategies across
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  real estate and many other verticals.
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  I sit within our single tenant triple net lease investment business with my partner
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  Adam Firstein, who you know, and others.
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  The whole team is actually based in Dallas.
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  I'm based in our New York City office.
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  Our objective is to invest in long-term single tenant triple net lease properties,
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  and we do that through buying existing net lease assets, executing sale
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  leasebacks with owner users, and my main area of focus is, is partnering
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  with developers and users to fully capitalize build-to-suit projects.
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  Yeah.
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  So when you, um… I imagine you've built up really good, uh,
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  relationships with a lot of, like, the end users that enjoy doing
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  build-to-suits for the obvious reason.
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  How do you… I imagine you got your groups that you work with already,
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  but how do you go about expanding that network and- Is it doing things like this?
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  And, yeah Yeah.
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  Great, great, great question.
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  So yeah, we're a sponsor here at IAMC, proud, uh, chairman circle sponsor.
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  Yeah.
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  And, and we go to a lot of the, uh, brokerage sponsored events as well.
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  And so the objective is to be close to really developers,
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  tenant reps, and users, right?
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  So the developers including Stonemont, Prologis, Link, who are all here today,
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  tenant reps like yourselves and others.
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  And then one of the unique things that we love about IAMC is the
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  opportunity to speak to users directly.
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  Yeah.
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  'Cause really, they're our ultimate client.
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  Our objective is to live with them long-term, subject
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  to these long-term leases.
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  And as we can be useful partner to them with restructuring leases, recapitalizing
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  CapEx requirements, we really enjoy those direct conversations as well.
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  So what are the reasons as tenants are thinking about markets to expand into,
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  or if they're already in existing markets but they wanna grow in those markets,
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  why would they consider a build-to-suit long-term lease versus, say, ownership
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  versus, say, leasing a spec building?
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  Great question.
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  Great question.
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  A lot of these uses are becoming more and more capital intensive and
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  more and more specialized, right?
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  So we look a lot at manufacturing, cold storage, data centers, and
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  these uses are very specific.
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  Mm-hmm.
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  So it's hard for many of these users to just go in and take a million square
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  foot, 40-foot clear height cross-dock facility- Right … because it doesn't
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  necessarily suit their specific need.
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  So one big advantage of build to suit is you get a custom-built building, right?
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  Right, right.
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  So whatever your requirement is, you can build it around your business.
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  One really great benefit.
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  The other thing is, and, and I'd love to hear your perspective on it, is as we've
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  seen more absorption, there's not as much availability in a lot of these markets.
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  Correct.
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  So it's easier to go tie up land and execute a build to suit to
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  your own specifications than compete with many other users for
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  existing spaces on the market.
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  Well, you hit it.
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  I mean, the big box, you know, bulk market is getting tighter and tighter
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  and, you know, now that Amazon is, you know, back leasing large buildings, right?
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  It's becoming more and more challenging to find million footers on the spec side.
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  So doing the build to suit, you know, in addition to just controlling that
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  land, but building it exactly the way that a tenant wants it, is obviously
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  an advantage for them as well.
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  Yeah, and they're more and more capital intensive as well because the
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  equipment in a manufacturing project is so expensive, oftentimes much more
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  expensive than even the build out.
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  Right.
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  Uh, data centers are a whole other conversation.
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  Different ballgame, yeah.
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  Cold storage.
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  So the capital requirements are becoming bigger and bigger, and we're proud to
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  be a partner and, and a reliable capital partner for these users to put together
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  a full capital stack and own longterm in a partnership with these tenants.
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  How, um, power has become an issue for a lot of users, for a lot of developers.
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  How are you guys navigating the power conversation early on in a
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  build-to-suit to make sure that you have the capacity, especially when you're
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  talking like manufacturing, to make sure that you're able to do that and
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  execute it on a, in the right timing?
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  Yeah.
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  We really take the tenant and the tenant rep's lead on that.
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  We say is we're happy to go where these tenants want to be and
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  build what they want to build.
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  When the tenant has identified a site through their advisor and, and their own
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  consultants that where the power works- We're happy to provide as much capital
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  as they need to bring that power to bear for their project and their requirement.
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  Another interesting thing to think about, or I guess that, that tenants
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  think about too, is a build-to-suit lease versus ownership, right?
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  And what are the reasons you would favor a lease versus ownership?
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  And we have a client going through this right now where they have
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  expansion capability at a current building, but are preferring to lease.
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  I'm sure you've experienced that and can touch on the reasons
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  why a tenant would consider a long-term lease versus ownership.
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  Yeah, great question.
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  And this really is the whole thesis behind our single-tenant triple net lease
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  investment business is the capital is better invested by these tenants into
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  their business versus invested- Right
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  into real estate.
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  Yeah.
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  So if you're looking at $100 million project, it's much more efficient for
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  this user to come to us to provide that 100 million subject to a long-term
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  lease, as opposed to investing that 100 million of their own capital,
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  which is much better invested into their business at a much higher return.
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  Yeah.
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  Are you seeing that more often?
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  Is that a newer trend, do you think, or is that a trend that's been in
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  place for a while, where companies, are they preferred ownership in the
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  past and are pivoting away from that?
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  Or do you think that's kind of been an, an existing trend?
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  That's been a trend for many, many, many years.
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  The desire to execute sale leasebacks and build-to-suit financing, it's
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  been a business for… since I've been in the business for 20-plus
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  years, and that's always been the, the thesis is these tenants' capital is
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  better invested into their business versus invested into real estate.
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  Yeah.
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  Those companies are looking to make a lot of infrastructure
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  and put that into the building.
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  They want to be assured they can control the building long term, which
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  you guys do on those build-to-suits.
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  You're probably structuring deals 10-plus years plus a bunch of options, right?
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  Um- Yeah.
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  Is that, what's a typical lease that you do on the, those build-to-suits?
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  Yeah.
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  Our preference is 15-plus years of lease term.
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  Really, 20-plus is our sweet spot.
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  And with many extension options- Right … so tenants can control these
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  buildings long term without having to invest their capital into the project.
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  Yeah.
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  They're, they're looking at it saying, "Well, we know how to make whatever
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  we're making inside this warehouse.
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  We know our business better than anybody, and we know what that return looks like.
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  Let's stay in our lane.
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  We'll partner with you guys, and you guys build us the building
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  and do it that way." Absolutely.
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  And we help them mitigate risk, right?
• 6:56
  We can execute a guaranteed maximum price contract.
• 6:58
  We can guarantee delivery and completion on a specific timeframe so that they
• 7:02
  can plan their business and their requirements around that timeframe.
• 7:05
  And so we take all of that work and risk, and we deliver a project to the tenant
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  in a risk-free and predictable manner.
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  How long do you like engaging with these, in these conversations with the
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  users before you execute on a plan?
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  Yeah.
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  Well, you guys know better than me.
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  Working with corporate America, it's, it's like v- we've got a
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  project that's ready to go this year.
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  This year could mean next year.
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  Right.
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  Yeah.
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  This year could be never.
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  Right.
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  Right.
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  So we're very happy to spend time with these users and developers and, and
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  not every project gets off the ground ultimately, but we're seeing a much
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  better hit rate this year, I think, than over the last couple of years.
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  Yeah.
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  There's been so much volatility over the last couple of years in, in the
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  markets and geopolitically that this year is feeling like a much more
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  active market in build-to-suits.
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  Yeah.
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  In '25, it really seemed like there was a lot of Let's hit the pause
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  button and see, get into next year.
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  And, and fortunately, I agree with you.
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  We're seeing more decisions getting made, deals getting done, especially
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  in that larger space, size range.
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  So that's, that's been a good thing to see.
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  Why do you think that is?
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  What are you hearing from your clients as to why it's easier to transact in
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  today's environment versus 2024, 2025?
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  Yeah, I think there was just more uncertainty in '24 and '25, and now,
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  you know, businesses are back on into making longer term decisions and
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  saying, "Okay, we kinda understand where we're at, but we gotta…
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  Business has to keep going, and we need to keep expanding, and we need to keep
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  growing to get to where we wanna get to." And so we can only hit pause for so long.
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  Yeah, we're past the election year.
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  We're past tariffs, kind of, but at least Liberation Day, right?
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  Those were the two big reasons in '24 and '25.
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  Yeah.
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  Now there's geopolitical reasons.
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  There's always gonna be a reason, but to Bill's point, like, business has to go on.
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  Agree.
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  The easiest thing to do is nothing, but eventually that's not an option anymore.
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  Yeah, and I mean, honestly, like, the market softened in the industrial space.
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  I mean, it was so good for so long, and a lot of these, the core markets were
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  3% or under from a vacancy standpoint.
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  Well, that's gone up.
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  Yeah.
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  And so some of these companies are looking at it saying, "Well, great
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  opportunity to take advantage of a softer market and lock into a longer
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  term lease at rates that we haven't seen in, in a few years." So controlling that
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  aspect of it too is, I think, helpful.
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  Agree completely.
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  And, and the rate environment was high for several years.
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  2023, we saw several banks go out of business, right?
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  Yeah.
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  And, and so construction lending was very tight in 2023, and we were able to, to be
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  a reliable capital provider even through those very tumultuous months in 2023.
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  And, and Fortress is proud to be there during those times when, uh, it's not
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  necessarily, uh, easy to transact.
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  No, that's nice to have.
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  Yeah.
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  So what are you doing the rest… So th- this has been great.
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  So there's a couple of days left in the conference.
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  What's, uh, what's on your agenda the, the rest of it?
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  Yeah, you know, it's pretty, pretty open agenda today to kind of, you know, h-
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  hang out in the lobby and meet some people and shake some hands and, and- Yeah.
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  Find a couple builder suits while you're here.
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  Yeah.
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  Yeah.
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  Find a, Find a, find a couple builder suits.
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  It'd be great to find one.
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  Maybe sit down and have a steak dinner later tonight, so.
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  Yeah, yeah.
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  Happy to be here in Little Rock.
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  I've never been here before.
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  I haven't either, so was not easy to get to from Seattle.
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  Like, Chicago to here.
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  A little easier from New York.
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  Yeah, it was a direct flight from LaGuardia, so.
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  Yeah.
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  What a fun, a fun city to check off the list.
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  Absolutely.
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  Thanks for joining us.
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  We wish you guys continued success.
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  We know what a good group you guys are to work with, so appreciate you
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  joining us on the podcast as well.
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  Yeah, thanks.
• 10:10
  Thanks so much.
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  Awesome.