BKM Capital, Kayne Anderson Launch $1.5B Light Industrial JV

A pair of investment firms headquartered on opposite sides of the country have joined forces to build a 10-figure stable of light industrial properties in infill markets across the U.S.

Newport Beach, Calif.-based BKM Capital Partners, and Boca Raton, Fla.-based Kayne Anderson Real Estate formed a $1.5 billion joint venture to create a portfolio of small and mid-bay industrial properties, BKM announced on Thursday. The JV plans to focus on middle market assets with low rent, high vacancy rates and/or “operational inefficiencies” where it can purchase assets at discounts, then flip. 

“[BKM] has spent over a decade building an operating platform designed explicitly for small-bay industrial, which is both operationally complex and highly fragmented,” Brian Malliet, BKM founder and CEO, said in a statement. “We specialize in identifying value where others don’t, transforming underutilized properties into high-performing assets that meet the needs of a rapidly evolving industrial landscape. With Kayne Anderson’s support, we can now bring that model to scale across new markets with a partner who shares our long-term view.”

BKM’s near-term goal for the JV is ambitious, as it aims to double its overall portfolio to $5 billion of assets under management within the next 18 to 24 months. The firm said light industrial properties are often overlooked by institutional capital investors, and assets are often priced “well below” replacement cost. 

The partnership has already made its first acquisitions. That includes a $550 million recapitalization of a nine-property, 2.1 million-square-foot portfolio at the end of last year. Those properties are in California, Arizona, Colorado, Washington State and Nevada, with the largest being Hughes Airport Center, a roughly 672,000-square-foot business park in Las Vegas. In March, meanwhile, the JV purchased five more properties, totaling 1.2 million square feet, in Las Vegas and Phoenix for $254 million. 

“The sector’s tailwinds — driven by e-commerce, onshoring, and supply chain transformation — create a compelling long-term opportunity, and this partnership is uniquely positioned to capture it,” Al Rabil, CEO of both Kayne Anderson Real Estate and its parent company of the same name. 

Indeed, smaller warehouses with less than 100,000 square feet offer the tightest vacancy rates of all industrial subclasses with an average of 4.1 percent, according to a first quarter market report by Cushman & Wakefield. Further, Rexford Industrial Realty — a real estate investment trust that has used a similar value-add strategy as BKM’s new JV to become one of the biggest owners of industrial space in Southern California — has attributed its success to its focus on smaller, high-quality assets. Michael Frankel, the real estate investment trust’s co-CEO, told investors during the company’s final earnings call for 2024 that small-to-medium sized tenants were much more resilient than big-box tenants with similar quality spaces. 

Nick Trombola can be reached at ntrombola@commercialobserver.com.