Under-The-Radar Asset Class Drawing A 'Flurry Of Demand' From Investors In Baltimore

A property type attracting growing attention from investors and tenants in the Baltimore area isn’t glitzy waterfront office towers, amenity-laden apartments or massive Class-A distribution centers. 

An increasing number of investors are looking at oddly shaped plots of industrially zoned land with just enough improvements for trucks to come and go, an asset class known as industrial outdoor storage. 

“We are seeing a flurry of demand from investors,” Rob Maddux, vice president of brokerage at JLL in Baltimore, said of the asset class.

Essentially, outdoor industrial storage is a piece of land where businesses can securely store items, such as recently imported cars, a fleet of last-mile delivery vans or stacks of PVC piping. While they can be standalone lots, they are often unused land next to older industrial buildings.  

Institutional capital has been flocking to this industrial subclass in recent years. A great deal of that demand is propelled by the fact there’s so little industrially zoned land in cities left undeveloped. Yet demand from a variety of potential users ranging from car importers to construction companies keeps rising.   

“It’s very limited, we have a very land-constrained market here,” Maddux said. 

Much of the growing interest in this product type locally, Maddux said, is attributable to the Port of Baltimore, and its position as the top port in the world for importing automobiles.  

The Port of Baltimore ranks second in North America — and No. 1 in the U.S. — in the number of cars and light trucks that pass through the port annually. Light trucks and car cargo passing through the port increased by nearly 27% between 2011 and 2021, according to data from the Maryland Port Administration. 

Cars — unlike video game systems, pet food or shoes — can’t be stored and transported from warehouses and distribution centers. They generally must be stored outdoors in spaces secure enough to protect them from damage and theft, but that only need enough infrastructure to allow car carriers to come and go.   

Industrial Outdoor Ventures, which calls itself the leading national owner of low-coverage industrial property, is among the investors that recently entered the Baltimore market. Last month the Illinois-based firm purchased its first asset in the city, 3501 East Biddle St., for an undisclosed price.

Baltimore is among the 15 or so markets in the U.S where IOV monitors acquisition opportunities. The Biddle Street property, with two fully leased industrial buildings and a 2-acre yard space that can be used for outdoor industrial storage, fit IOV’s acquisition profile like a glove.     

“We’re always looking for the right location, with the right zoning with improvements,” IOV Senior Vice President of Development & Acquisitions Eric Johnson said. 

But just like the other markets IOV monitors, more and more investors in the past 12 to 18 months have started competing for spaces with outdoor industrial storage potential. Those investors, Johnson said, are largely attracted by the combination of limited supply and low development risk. 

Nonetheless, factors such as rising interest rates have already pushed investors out of the competition for properties. Primarily it is purchasers that finance acquisitions on a deal-by-deal basis that are getting bumped, Johnson said.

“A lot of people are getting flushed out of the space,” he said.

While there is evidence of growing interest from institutional investors and private equity firms in the last year, there is little data available to show the scale of that interest. 

Local brokerage reports on the industrial market don't track the sale of these properties as a unique asset category. That is in large part because these deals often involve an existing industrial property, which means any deal for an industrial building with excess land may be, at least partially, a deal for outdoor industrial space. 

1788 Holdings acquired two industrial assets in Baltimore last year that included outdoor storage land: 6901 Rolling Mill Road and 1601 Wicomico St. 1788 Managing Principal Larry Goodwin told NAIOP's Maryland chapter in October that the outdoor land was part of the reason he acquired the property, given the scarcity of that type of land in the city and the ongoing need for it.

While Goodwin is still buying industrial properties, he told Bisnow that he's skeptical about the trend of widespread investor interest in the Baltimore industrial market. And he worries that the hot market is pushing out too many potential tenants.

Roughly 80% of the people interested in these properties, he said, are still local businesses. The bread and butter in the Baltimore industrial market isn’t multinational firms inking huge leases or e-commerce giants paying eight figures to buy Class-A buildings. 

“That is such a thin slice of the market,” Goodwin said.

When Goodwin acquires an industrial property, he said he is on the lookout for properties with open land on the site. That land can be used for outdoor industrial storage, which gives him an advantage when competing against other properties that only have storage in the building. That's because he can charge much lower rents for storing products outside, which provides the end user more space at a lower cost.  

“I win every bake-off,” he said.