Acquiring a Fully-Leased Warehouse in Top Logistics Market

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Aerial Truck Court Warehouse Interior Street View Frontage Site Approach

THE OPPORTUNITY

A 100%-Leased NNN Industrial Building in the Heart of America's Distribution Corridor, Acquired Below Replacement Cost

Memphis occupies a singular position in U.S. logistics infrastructure. The city sits at the intersection of two major interstates and serves as home to the world's second-busiest cargo airport, the operations center of FedEx, and one of the largest inland ports on the Mississippi River. Five Class 1 railroads converge in Memphis, giving shippers and distributors access to every major corridor in the country from a single location. The result is a concentration of warehousing and distribution activity that few metros can match, anchored by Fortune 500 tenants including FedEx, International Paper, and AutoZone.

The Southwest Memphis industrial submarket, where this property sits, spans approximately 47 million square feet and is dominated by logistics uses, which account for 68 percent of total submarket inventory. At the time of this transaction, submarket vacancy had declined for four consecutive quarters to 3.9 percent, and year-over-year rent growth of 9.4 percent was running at three times the long-term average of 3.1 percent. Only 17,100 square feet of new supply was under construction in the submarket, meaning the demand being absorbed by existing tenants could not quickly be replaced by new product. Cap rates were compressing and sales volumes had exceeded the ten-year average, reflecting strong investor appetite for well-located industrial assets in this corridor.

Against this backdrop, an experienced Memphis industrial operator with an existing ownership position in the submarket identified a 289,000 square foot warehouse at 1725 South Third Street as an acquisition opportunity. The sponsor had pre-leased the entire building to a national home goods wholesaler on a net lease basis prior to closing, eliminating leasing risk from the acquisition and producing a stabilized income stream from day one. Late in the process, a planned equity partner stepped back from the transaction, creating a compressed timeline to close that required a financing solution capable of moving on short notice. RRA stepped in to provide that certainty.

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THE PROPERTY

289,000 SF Single-Tenant NNN Industrial Warehouse, 23.61 Acres, with Direct Access to the Southwest Memphis Logistics Network

The property at 1725 South Third Street is a single-story industrial warehouse of approximately 289,000 square feet, built in 1961 and situated on 23.61 acres along US Route 61, approximately 1.5 miles from Interstate 55 and 3.5 miles from Interstate 40. The building's footprint and site coverage provide generous truck court depth and approximately 300 surface parking spaces, consistent with the requirements of a large-format distribution or warehousing tenant.

The facility offers clear heights ranging from 16 to 26 feet across the warehouse floor, 23 dock-high doors, and 2 grade-level doors. The building is positioned within close proximity to FedEx ground distribution infrastructure, Memphis International Airport, the Port of Memphis, and the CN Railyard, placing the site at the intersection of each of Memphis's four primary freight modes. The surrounding submarket is one of the most supply-constrained large-bay industrial environments in the mid-South, with vacancy at historic lows and limited new construction on the horizon.

The tenant in place at acquisition was a national wholesale distributor of home goods and accessories, occupying the entire building under a triple-net lease structure. The lease commenced in April 2022 with a three-year initial term extending through March 2025, at an annual base rent of $2.56 per square foot with 2 percent annual escalations. Under a NNN structure, the tenant was responsible for real estate taxes, insurance, and maintenance, limiting landlord obligations and producing a predictable net income stream. Year 1 net operating income was underwritten at $691,801, producing a 1.30x debt service coverage ratio and a 10.4 percent debt yield on the loan.

The property was appraised by Cushman & Wakefield in January 2022. The as-is value of $11,100,000 reflected in-place occupancy and a market that was moving quickly; the stabilized value of $13,450,000 reflected the full value of a seasoned lease at market rents in a tightening submarket. The acquisition price of $8,800,000 represented a meaningful discount to both appraised values, allowing RRA to lend at a conservative basis relative to the collateral.

THE RRA SOLUTION

$7,275,000 First-Position Bridge Loan with TI Holdback, Closed on a Compressed Timeline Following Equity Partner Withdrawal

RRA structured a $7,275,000 first-position bridge loan to finance the acquisition and associated leasing costs. The loan was funded in two components: an initial disbursement of $6,625,000 at closing, representing $22.92 per square foot, and a $650,000 holdback for tenant improvement and leasing cost reimbursements to be released upon completion of qualifying work.

The underwriting was grounded in the in-place economics at closing: 100 percent occupancy, a NNN lease to a single creditworthy tenant, and a purchase price meaningfully below appraised value. Year 1 underwriting showed a debt service coverage ratio of 1.30x and a debt yield of 10.4 percent on a going-in basis, both of which were conservative given the strength of the submarket and the quality of the tenancy.

The sponsor's familiarity with this specific submarket, combined with existing ownership of adjacent property at 1700 South Third Street, provided additional confidence in the operational picture.

EXECUTION

Fully Occupied Building, Strong Submarket Fundamentals, and a Sponsor with Established Memphis Market Relationships

The property performed in line with underwriting from the outset. With a 100 percent leased NNN structure in place, operating variability was limited, and the Southwest Memphis submarket continued to tighten throughout the loan period. The combination of a creditworthy single tenant, a net lease with annual rent escalations, and one of the most supply-constrained industrial submarkets in the mid-South produced a stable asset profile from the date of acquisition.

The sponsor's existing presence in the submarket, including ownership of the adjacent property, gave the team both operational efficiency and market insight that translated to active asset management. Throughout the loan period, RRA maintained regular contact with the sponsor and tracked property performance against the underwritten projections. Vacancy in the Southwest Memphis submarket remained at or near historic lows, rent growth continued to outpace long-term averages, and investor appetite for net-leased industrial product in Memphis remained strong.

THE EXIT

Loan Repaid in Full, May 2022

The loan was repaid in full on May 20, 2022, approximately two months after origination. The speed of the repayment reflected a fundamental characteristic of the collateral: a 100 percent leased, NNN industrial building acquired below appraised value in one of the tightest industrial submarkets in the country is an asset that conventional, permanent lenders are eager to finance. With the lease executed and the building fully occupied, the sponsor was able to arrange long-term financing almost immediately after closing, resolving the bridge loan well inside its initial term.

The outcome validated the core thesis of the transaction. RRA's ability to close on a compressed timeline when an equity partner withdrew allowed the sponsor to complete an acquisition that was firmly underwritten and priced conservatively. The brief hold period and clean exit reflected the quality of the underlying real estate and the strength of the lease, rather than any need to work through leasing risk or operational complexity. The loan performed exactly as a well-structured industrial bridge loan should.