Rising interest rates and economic uncertainty have not been enough to slow one of the industry’s most active investors in its efforts to amass a dominant portfolio of small warehouses in the Sun belt.
BKM Capital Partners has spent $2.8B on 72 assets to date, surpassing the original $2.3B target for 2026, Brett Turner, BKM’s newly promoted chief investment officer, told Bisnow in a videoconference interview this month.
A light industrial asset at 3600 Vineland in Orlando is one of the assets BKM Capital Partners purchased this year.
Despite the rapid increase in borrowing costs and the expectation that dealmaking will slow down, the Newport Beach, California-based firm is bulldozing through market uncertainty, expected to top $3B over 79 assets by the end of the year, said Turner.
“It’s pretty heavy on us,” he said.
“We are in the value space, so we can always find good opportunities that are undervalued that have a large margin of safety that we can capitalize on,” he added.
BKM was founded by CEO Brian Malliet in 2013 with two employees as an institutional fund manager and a small-bay light industry asset operator. In three years, BKM grew to 36 employees and had $264M in assets under management. The company currently has more than 200 employees and $8.1B in AUM across more than 235 assets, according to its website.
Turner started as director of acquisitions, according to his LinkedIn profile, and is now not only a partner and CIO for BKM but also serves on the company’s executive committee and chairs the investment committee.
BKM is working primarily with Kayne Anderson Real Estate, a 42-year-old private equity real estate investor with $41B in AUM, to expand its footprint this year.
The bet on light industry comes as the broader sector sets off a historic construction wave that is putting billions of square feet on the market.
Unlike big-box warehouses – which led to a 19% increase in construction despite the fact that vacancies and rents were relatively flat, according to the third quarter national Colliers report – smaller industrial properties that serve local and regional businesses that need space for storage or light production are generally less.
Mid-bay completions have declined 70% since peaking in late 2023, according to a BKM white paper, citing second quarter data from CoStar.
The lack of available supply gives investors like BKM the confidence to close acquisitions even as the Fed raises rates for the first time since 2023 and yields on 10-year Treasury bonds exceed 5% from below 4% in six months.
“Groups are aggressively underwriting the small bay industry because they want to buy,” said Lee & Associates Tampa industry broker Jackson O’Neill. “It is small where there are also some buyers who may not be in the small-bay industrial market, and they are willing to overpay for one or two properties so they jump into the market and put an arrow on the board.
The sector has a sticky tenant base, often made up of essential uses, creating a stable cash flow profile, especially amid economic volatility, said Tom Stipanov, a partner at industrial investment firm Longpoint Partners.
“What we like is that, regardless of the macroeconomic situation, basic tenant demand continues to improve performance and [net operating income] growth at the real estate level, independent of what the capital market can do,” said Stipanov, who closed a $195M deal to buy a 729K SF, 10 building portfolio in Miami-Dade County in early September from a Brookfield affiliate.
Although the 10-year has been stable in recent weeks, inflation has heated up again, and oil prices on Friday hit their highest point since April, adding to a challenging debt environment that has prompted many buyers to return to the negotiating table to demand price cuts or concessions before closing.
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Turner said he has yet to see a deal fall through, and BKM has yet to ask sellers to lower their bids on the works.
“We’re a little more sensitive than the average buyer,” Turner said. “We do a lot of business and, obviously, a lot of volume. Our reputation is quite important to us, so we will absorb more than the next person.”
Turner said BKM has seen very little impact on the company’s assets because it hedges 100% of debt.
The venture’s multibillion-dollar push began in February, but the biggest deal was the $1.8B it paid Link Logistics for a 90% occupied, 8.5M SF portfolio of 51 multitenant industrial properties in California, Washington, Texas and Georgia.
BKM, which primarily targets assets in the Southeast, Texas and California, continues to advance, putting $174M in three industrial acquisitions in Florida from September to October. Between 75% and 80% of those deals come from the marketplace, Turner said.
This includes a 210K SF multitenant business complex and a 61K SF small industrial property in Fort Lauderdale and a 545K SF light industrial portfolio in Central Florida.
BKM plans to invest millions in upgrades to the exterior, roof and HVAC of the purchased buildings.
It is not only in the push to get in the light industry sector. For some investors, the fundamentals that support rental growth forecasts are enough to justify paying the current premium, O’Neill said.
“They’re making money, and they’re not going to make money if they’re sitting on the sidelines,” O’Neill said. “They’re ready to jump in and potentially pay a premium today, with the idea that rents will continue to grow.”
Turner said he has noticed a wider pause in acquisitions and a widening of the bid-ask spread between buyers and sellers. The new volatility also motivates them to do more because of potential sellers.
“We’re seeing a lot of sellers who are planning to take their assets on the market. If they can hold on to next year and wait another six months, they’re doing it,” Turner said.
“We do a lot of vetting before we dig into the property right now to make sure that the seller is actually a seller in the current market, because it basically moves in the last three to four weeks,” he added.
Turner, who was in the midst of signing two other deals at the time of the interview, said BKM has about $200M in acquisitions totaling 900K SF in escrow. After that is an even bigger question mark, considering the uncertainty that has plagued the real estate capital market.
“This will reduce the volume of acquisitions to the point where there is a problem,” he said. “The market hates volatility. It doesn’t matter where it lands, it just has to land.”