Confronting the largest IOS property owner in the world - by David Skinner

I recently spent some time at the SIOR Spring conference. SIOR is an organization of top-performing commercial real estate brokers from around the world. Twice a year we get together review topics that are on everyone’s mind, like AI, new tech tool, and industry trends. IOS has been getting some exposure lately due to everyone’s interest in the topic. Brokers are reorienting prospecting efforts to capture some of these high watermark sales and lease rates, and private property owners have been inundated with the incessant, annoying, and high-priced purchase offers from brokers and buyers everywhere.

One of the breakouts at the SIOR conference was led by a couple of the largest IOS buyers in the country. They answered some frequently asked questions asked by CRE industry professionals. The panel was helpful in many ways. They discussed topics like: what traits make up the most valuable commercial IOS properties? Are there rent caps around the country? Some of it was review, but some was helpful, new information from a perspective I hadn’t heard. 

Now, during the panel discussion, I had a question that I knew was going to ruffle some of these private equity feathers. I have been watching these buyers acquire for a few years now, and in our market, there are only a few remaining sites that are controlled by private investors who would be targets to sell. Most of the Greater Boston IOS inventory is owned by the owner of the company who ran the business or by a family who has owned the property for generations. The time came for Q and A, and so I asked: “I’m sure your teams have analysts who have calculated the amount of time it will take for the IOS to be largely owned by private equity, just like the distribution centers in Jersey City are all owned by Prologis and other similar group. How long will it take before there aren’t very many more sites to buy? Do you know what they said?

NOTHING AT ALL! They didn’t want to touch that one with a ten foot pole. The brokers in the room have all been wondering when these investors are going to wrap up their interest in acquiring as they have. The IOS buyer types don’t want to address it because they want brokers finding them more deals. One of the panelists actually said that the market will never mature, and IOS will always be this hot. That comment was how I knew he was making an emotional argument, not a rational one. Of course, at some point, buyers will slow down because the supply will have been picked over. His co-panelist broke the moment by saying that some markets are more IOS-focused than others, but that is obviously true and didn’t address my question.

Asking an investor when his business is going to shut down due to their capital’s lack of interest is not a comfortable. I needed to ask because I want to understand the lifecycle on the run on IOS. This impacts everyone in the IOS industry – buyers, tenants, landlords, and sellers alike – everyone who has been involved with using IOS long before IOS was ever a term. 

I think the panelist was wrong, because there is a timeline before the IOS market matures, and we all know it. I needed to confront it when I had the opportunity! I also needed a good headline for this article. I did go up and have a good laugh with him afterwards about Tik Tok and some other things. He’s a great guy.

David Skinner, SIOR, is an advisor, partner of Prescott, Lincoln, Mass.