3 Warehouses for $10M or Less in Booming Border Towns

With the pandemic disrupting global supply chains, more companies are “nearshoring,” or moving production from Asia to Mexico to be closer to the United States and speed up exports.

Prologis, the world’s largest logistics real estate company, predicted in December that industrial demand in Mexico will hit a new annual record in 2023. Prologis owns 44 million square feet of industrial space in Mexico.

The construction pipeline in the country rose to a record 25 million square feet in the third quarter of 2022, while vacancy fell to a record low of 1.4%.

Now, many institutional investors such as Morgan Stanley and CBRE are betting that warehouses in southern border towns in Texas, Arizona and California can capitalize on that momentum as well.

“Over two million square feet of new construction has been built over the last three years in Laredo,” said Bryan Johnson, a director with CBRE’s Capital Markets, Investment Properties Group, who is listing a warehouse for sale in Laredo, Texas.

So, what exactly is available in these southern border towns to American investors? A current search on LoopNet shows options including triple-net opportunities, sale-leasebacks and value-add plays.

13806 N. Unitec Drive, Laredo, Texas

This nearly 80,000-square-foot warehouse is leased to Mexico-based supply chain company Grupo Cargoquin on a triple net basis through August 2027, with a five-year renewal option at expiration.

“13806 N. Unitec Drive provides exceptional ease of ownership with an attractive going in yield and ample rental growth upside in the long term,” Johnson wrote.

The property comes with 28 loading docks and is situated off Interstate 35, a cross-country interstate stretching from Laredo to Duluth, Minnesota. The tenant is responsible for all equipment under its triple-net responsibilities, and the property would trade for a 5.5% first-year cap rate at its listed sale price of $135 per square foot.

Laredo, is also on the Rio Grande, like El Paso, and is another city many logistics firms are focusing on as they look to expand their U.S.-Mexico operations. The city is the largest inland port along the southern border, according to the U.S. Census Bureau, with a trade volume of nearly $300 billion in 2022, and serves as a critical juncture between I-35 and Mexican Federal Highway 85. The industrial vacancy rate in Laredo is 2.9%, with 12-month rent growth of 8.3%, according to CoStar, publisher of LoopNet.

“Investors are drawn to an attractive return for a property located in one of the busiest U.S.-Mexico land ports, which facilitates close to 60% of all annual trade between the two countries,” Johnson told LoopNet.

9870 Marconi Drive, San Diego

This 20,000-square-foot manufacturing and distribution facility is 100% leased and was fully renovated last year with updated power, water, ventilation and HVAC.

The property is located one mile from San Diego’s Otay Mesa Port of Entry and seven miles from Interstate 805, an auxiliary of Interstate 5, which runs from Mexico to Canada along the Pacific coast. The facility has 23-foot clear ceiling heights, and two loading docks and would trade at a pro forma cap rate of 6.43% at its current listing price of $325 per square foot.

The property is also located in San Diego’s Foreign Trade Zone and California Enterprise Zone, where many companies are increasingly pivoting to take advantage of tax incentives from cross-border distribution and manufacturing channels.

Among them is Amazon, which built a 3.4-million-square-foot distribution facility in 2021 in the area, and another 700,000-square-foot facility last year. There is roughly 1.2 million square feet of space under construction within two miles of the Otay Mesa Port of Entry, according to CoStar.

The number of lanes that can process cargo trucks into San Diego at the border crossing increased from nine to 16 in 2022, which should improve access.

3151 E. Drexel Road, Tucson, Arizona

Here’s a sale-leaseback opportunity that presents a short-term 9.6% cap rate and long-term redevelopment play. This 29,000-square-foot warehouse is owned by a wholesale gem sales company that plans to stay in the property for a maximum of two years and sell its inventory or business before vacating.

The warehouse has three loading docks and is located minutes from Interstate 10 and Tucson International Airport. The property, which is under contract but has yet to sell, is set to be split into two sections. The building is priced at $85 per square foot.

Tucson’s industrial vacancy rate is at an all-time low of 2.6%, according to CoStar. The construction pipeline in Tucson remains relatively mild, with about 2.6 million square feet of industrial space underway.

Tucson's average rent of $10.30 per square foot is well below the level seen in Southern California, where rents can exceed $18 per square foot. This relative affordability, as well as proximity to the southern border and the ports of Los Angeles and Long Beach, has attracted new demand from investors and tenants. Rents are up 5.5% in the past year, according to CoStar.