Understanding the Complexities of Financing Industrial Properties

By Dominic Sestito, Associate 

Industrial real estate continues to be one of the most sought-after asset classes in commercial lending. From logistics hubs to last-mile distribution centers, lenders are eager to finance industrial—but that doesn’t mean it’s simple. Each deal comes with its own set of nuances, especially when it comes to property subtype, tenancy, lease structure, and risk profile. 

Here’s a breakdown of the key complexities we navigate when financing industrial properties—and why lenders still love this space.  

Different Types of Industrial Subtypes 

Industrial real estate isn’t one-size-fits-all. Common subtypes include: 

• Warehouse/Distribution: Often large-scale, with high clear heights and dock doors. 

• Manufacturing: Heavier infrastructure, often with power and environmental considerations. 

• Flex/Light Industrial: Combines office and industrial use, often in suburban markets. Most lenders will need to understand the office vs industrial breakdown for this asset class. 

• Cold Storage: Specialized and capital-intensive, but in high demand. 

Each subtype has different underwriting considerations. For example, we recently financed a ±51,500 SF multi-tenant light industrial property in Southern California, where our life insurance company lender placed a premium on tenant diversification and rollover risk. 

Multitenant vs. Single Tenant 

Single-tenant industrial properties—especially those leased to credit tenants—can attract life insurance companies and institutional lenders. However, they come with binary risk: if the tenant vacates, the property may sit dark. 

Multitenant properties offer income diversification, but lenders will scrutinize lease terms, rollover schedules, and tenant credit. In a recent deal, we secured financing for a multi-tenant industrial asset in the Inland Empire, where the lender appreciated the staggered lease expirations and strong in-place cash flow. 

Lease Structures: Gross, Industrial Gross, and NNN 

Lease structure directly impacts net operating income and lender perception of risk: 

• Gross Lease: Landlord pays all expenses—less common in industrial. 

• Industrial Gross: Tenants pay some expenses (e.g., utilities, janitorial), but landlord covers taxes and insurance. 

• NNN Lease: Tenant pays all operating expenses—most favorable to lenders. 

Lenders prefer NNN leases for their predictability and reduced landlord obligations. However, they’ll still finance industrial gross leases if the rent is adjusted accordingly. 

 Risks and Concerns 

• Lease Rollover: High rollover in the first 3–5 years can limit loan proceeds and increase perceived cash flow volatility. 

• Environmental: Industrial properties often require Phase I (and sometimes Phase II) environmental reports. Past uses like auto repair or manufacturing can raise red flags. 

• Functional Obsolescence: Low clear heights, limited loading, or poor access can impact long-term value and tenant demand. 

• Zoning and Permitting Issues: Properties in transitioning industrial zones or with non-conforming uses may face future redevelopment pressure or restrictions on tenant operations. 

• Tenant Credit Quality: Especially in single-tenant deals, lenders will closely examine the financial strength and business model of the occupant. A non-credit tenant with a short lease term can significantly reduce loan proceeds or eliminate lender interest altogether. 

What Lenders Look For—and Why They Like Industrial 

Lenders are drawn to industrial for its: 

• Strong tenant demand 

• Low capex requirements 

• Resilience across economic cycles 

They look for: 

• Modern construction (or well-maintained vintage) 

• Strong tenant mix and lease terms 

• Market fundamentals (low vacancy, high absorption) 

Current Rates for Industrial Properties 

As of July 2025, our correspondent life insurance companies are quoting: 

• 5.50-6.0% for single and multi-tenant industrial properties across the country with NNN and Gross Leases 

• Amortization: 25–30 years 

• LTV: Up to 55% 

At Slatt Capital, we specialize in navigating these complexities to deliver tailored financing solutions. Whether you’re acquiring, refinancing, or developing industrial assets, we’re here to help you structure the right deal.