McKinney, Texas, United States

Client Objectives:

Sometimes, pulling a deal together means exploring opportunities outside of the norm. We’ve all seen the prospects that fly into Dallas-Fort Worth International Airport, eager to see the usual suspects for industrial space. Brokers show them around the available spaces near the airport, in Plano, or Richardson. Depending on where we are in the market, sometimes you can find a big space that meets the client's needs, and other times, it is a big goose egg.

We had a client several years ago who really wanted to be in North Dallas, but the largest available space at the time was only 195,000 sq. ft. We explored all of the land opportunities that could accommodate the client’s needs, including zoning and reasonable pricing, but found nothing that would work.

That’s when we started thinking outside of the box and began exploring alternative sites in areas considered “non-traditional.” As we searched for solutions, several questions and issues arose:

• With industrial user demand remaining high and vacancy low, where do tenants go for additional space?
  
• Where are the 200,000 - 800,000 square foot blocks of space?
  
• With established industrial parks built out, where is available land for future development?
• Given the pricing and lack of available land in traditional industrial parks, are there options for developers outside of higher-priced alternatives such as adaptive reuse and/or redevelopment?
• With strict municipal zoning restrictions to navigate, where will municipalities ultimately allow industrial development?
• Where is relatively affordable land for development?

Pioneering can be challenging for institutional investors and developers. This is where market knowledge and finesse play a critical role in persuading them to explore non-traditional locations that can accommodate the zoning requirements as well as offer competitive pricing.

Moving isn’t always a great option for businesses, but a lack of available, affordable space, sometimes make it necessary to look farther outside the metro areas. Once we determined the market’s lack of larger industrial buildings, we identified sites in non-traditional locations that could accommodate the need.

Finding Solutions:

Andy and I identified a site that the city was willing to rezone for industrial use and convinced the seller, who had been contemplating selling this site for nearly 20 years, that a user like our client was the key for him to finally pull the trigger on the sale. Next, we approached Doug Johnson, president of Texas Commercial Development (now Falcon Commercial Development), about the opportunity to buy and develop this site. We proposed building two facilities, 500,000 sq. ft. and 300,000 sq. ft., respectively. The idea was to build one for Citadel Partners’ client and the second facility to fill the gap for other users. Intrigued by our analysis of the need for facilities like this, Doug was interested in the long-term potential, seeing the broader opportunity to acquire the entire 85-acre area and spurring new interest.

When presented with a site for future industrial development in McKinney at that time, none of the large institutional developers and investors were willing to pioneer large industrial buildings in the area without a joint partnership with the city. They requested user comps ranging from 300,000 to 500,000 sq. ft., but there were none at the time. They asked who would want to take the space, and the answer was tenants within the market looking to expand, last-mile users wanting to be near rooftops, or users from another market who cannot find large blocks of space. With the lack of comps, they all declined except for Doug. Fast forward to today, and there are now 10 different developers building large industrial facilities in and around McKinney.

What Does It All Mean?

Looking back on this sale has reinforced our practice of staying focused on the user and understanding the market’s capabilities. Citadel Partners’ ability to explore out-of-the-ordinary solutions and be creative provided the right approach for this client and the developer pulled into the deal. Following growth trends and taking advantage of the opportunities led to many satisfied parties.

Before this, big developers didn’t want to go to McKinney because they considered it a small tenant market and didn’t believe they could get their investors on board with building there. However, after this project’s success, other developers have now followed, and the market is growing.

Ultimately, our tenant knowledge paid off. We understand tenants and seek opportunities from the demand side rather than the supply side. The moral of this story is that in this expanding industrial market, don’t assume that the only options lie within traditional industrial parks. This was a pioneering move for McKinney’s industrial market; there were no big buildings (outside of the 697,000 sq. ft. former Blockbuster distribution center) before this one. We likely won’t see any 1-million-square-foot facilities going up in McKinney, and this area won’t be the next version of South Dallas or Alliance, but the previous gap is now being filled.

PARTICIPANT & INFORMATION PROVIDED BY

• Scott Jessen, SIOR
• Andy Goldston, Member Associate