REITs focused on industrial land acquisition follow defined criteria to ensure alignment with their strategic goals, risk tolerance, and return expectations. These acquisition filters help evaluate land’s development potential, income generation prospects, regulatory compliance, and market positioning. While specific thresholds vary by REIT, most share a common framework that guides land selection for portfolio inclusion. Below are five critical acquisition criteria used by REITs for industrial land investments.
1. Zoning Compatibility and Entitlement Potential
- Land must be zoned or rezoned for industrial use, including logistics, warehousing, or light manufacturing.
- Parcels with existing entitlements or short-path rezoning potential are prioritized to reduce development risk.
- REITs assess the likelihood of municipal approval, permitting timelines, and community support.
- Zoning flexibility for multi-tenant or build-to-suit configurations enhances asset adaptability.
- Legal land use certainty is key to underwriting long-term value.
2. Location and Infrastructure Access
- Sites near major transportation corridors, ports, rail hubs, or intermodal facilities are preferred.
- Access to utilities (water, sewer, electricity, fiber) must be in place or economically extendable.
- REITs prioritize logistics hubs, urban-edge locations, or growth corridors with tenant demand.
- Proximity to labor pools and supply chain partners is a deciding factor.
- Land with minimal offsite improvement requirements is favored for cost-efficiency.
3. Size, Scalability, and Parcel Configuration
- Parcels must meet minimum size requirements for planned building footprints and circulation areas.
- REITs prefer contiguous land with regular shapes that support flexible phasing or subdivision.
- Scalability is evaluated for multi-phase development, tenant mix variation, or future expansion.
- Sites suitable for multiple users or a mix of industrial uses add diversification value.
- Sufficient frontage, access points, and visibility are critical for tenant attraction.
4. Market Demand and Lease-Up Potential
- REITs assess regional industrial space absorption, vacancy rates, and rental growth trends.
- Focus is placed on undersupplied markets or those with tenant pre-leasing potential.
- Tenant profiles, including logistics firms, light manufacturers, or cold storage operators, influence site targeting.
- Alignment with e-commerce, distribution, or last-mile delivery trends increases attractiveness.
- Projects are modeled for yield-on-cost, internal rate of return (IRR), and development velocity.
5. Environmental and Regulatory Viability
- Environmental due diligence (e.g., Phase I and Phase II ESAs) must confirm clean or remediable conditions.
- Sites within flood zones, conservation overlays, or protected ecosystems are generally avoided unless mitigated.
- Compliance with stormwater, traffic, and air quality regulations is evaluated early.
- REITs also consider community relations, impact fees, and permitting constraints.
- Land with minimal environmental encumbrances is favored to reduce entitlement and development delays.
