Skyler recently traveled to Tampa, Florida where he toured a multi-tenant, small bay industrial DST property offered by Denholtz, a New Jersey-based private equity real estate firm focused on small bay industrial and multifamily assets. Founded in 1953, Denholtz has operated through multiple real estate cycles and continues to concentrate on infill industrial locations with durable tenant demand.
This visit provided a real world look at how small bay industrial DST investments are operating in active Sun Belt markets and why leasing strategy, tenant composition, and local real estate fundamentals play a meaningful role in the potential for long term income and appreciation.
What Is a Small Bay Industrial DST
Small bay industrial real estate typically consists of multi-tenant warehouse and flex spaces under roughly 50,000 square feet that serve local trades, logistics providers, service companies, and regional distributors. When structured through a Delaware Statutory Trust, investors gain fractional ownership in the property while receiving their proportionate share of any potential passive income generated through long term leases.
These assets are often characterized by diversified tenant rolls, shorter buildout timelines, and the ability to transition lease structures to NNN formats, which has the potential to help stabilize operating expenses over time.
Tampa Industrial Real Estate Market Overview
Walking the Tampa market in person provided context that is difficult to capture through underwriting alone. The surrounding submarkets have evolved into a dense industrial corridor supporting logistics, construction, and service businesses across the region. Adjacent properties included a large FedEx shipping facility, a Ferguson distribution location, and U-Haul storage which are all indicators of established industrial demand.
The broader Tampa Bay industrial market has shown signs of stabilization following earlier supply headwinds, with positive net absorption returning in recent quarters. Leasing activity has remained particularly strong in the sub 50,000 square foot space, reinforcing Tampa’s position as a leading small bay industrial market in the Sun Belt.
Small Bay Industrial Demand in Tampa
Nationally, industrial real estate continues to rank among the more historically resilient property sectors, but demand dynamics within small bay assets differ from large logistics facilities. Smaller industrial spaces tend to serve local economic activity, making occupancy less sensitive to global trade cycles.
In Tampa, leasing momentum has been driven by functional infill space near workforce populations. Hundreds of small bay leases have been executed in recent years, and occupancy levels observed during the tour, consistent with high 80% to low 90% market ranges, reflect these trends.
This level of sustained demand supports rent stability and provides a foundation for long term income focused investment strategies.
NNN Lease Strategy in Industrial DST Investing
A key differentiator for this property is its leasing strategy. Approximately 30 to 35% of tenants remain on modified gross leases, creating an opportunity to transition toward longer term NNN structures. Management has already begun engaging tenants early, prioritizing lease extensions that introduce annual rent escalations and shift expense responsibility.
Children’s Network of Hillsborough, occupying roughly 23,500 square feet, represents one example. The team has secured an agreement to move the tenant to a seven year NNN lease with 3% annual increases. Early lease engagement reduces rollover risk and improves rent visibility for DST investors.
Industrial DST investing often relies on lease durability, tenant diversification, and disciplined asset management.
Tenant Improvements and Lease-Up Execution
A 17,000 square foot office component remains partially vacant, with negotiations underway for a prospective tenant to occupy 11,000 square feet. Denholtz is contributing a portion of tenant improvement costs while the tenant funds the remainder, a structure that seeks to preserves capital while facilitating occupancy growth. If completed, occupancy could approach the mid 90% range.
Permitting timelines in Tampa remain relatively efficient compared to coastal markets, with approvals often completed within weeks and buildouts following shortly thereafter. Faster execution reduces downtime and supports lease up velocity.
Tenant Profile and Stability
Tenant longevity across the asset reinforces the durability of the location. Several tenants have operated within the property for more than a decade, including Home Depot, which utilizes its space as a regional training facility. Management intends to begin NNN discussions well ahead of lease expiration, demonstrating proactive asset management rather than reactive leasing.
Operational Flexibility and Configuration
The asset is positioned to shift toward a warehouse heavy mix over time, targeting approximately 90% warehouse and 10% office usage. Most units already feature roll up doors, and remaining spaces can be easily converted depending on tenant needs without much capital expense. Functional design, adequate parking, and adaptable layouts help maintain leasing optionality across tenant types.
Industrial DST Investing and Small Bay Strategy
This visit highlights how industrial DST investing works in practice within small bay industrial properties.
Small bay industrial DST investments have drawn increased attention from passive investors because of their diversified tenant base, shorter lease rollover risk compared to single tenant assets, and potential for NNN lease conversion. Infill industrial locations, particularly those serving local businesses, can exhibit durable occupancy even as broader industrial vacancy fluctuates.
The Tampa property illustrates how incremental operational improvements, like lease restructuring, tenant retention, and disciplined capital deployment, can potentially influence the predictability of the assets performance.
Investor Perspective
Rather than relying on aggressive appreciation assumptions, the strategy centers on execution. Converting leases, controlling expenses, and maintaining occupancy create the possibility of a more stable foundation for long-term cash flow. Observations from the tour reinforce the broader thesis that well-located small bay assets can perform consistently across cycles when supported by active asset management.
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FAQ:
What is industrial DST investing?
Industrial DST investing allows investors to own fractional interests in multi-tenant warehouse and flex properties while potentially receiving passive income.
Why small bay industrial for DSTs?
Small bay assets often provide diversified tenant exposure, less concentration risk and historically more stable occupancy.