Industrial with Office Tenant Type

Definition of Industrial with Office Tenant Type

In the context of commercial mortgages, an Industrial with Office tenant type refers to a property—often categorized as "Flex Space"—that combines traditional industrial functionality with a significant portion of finished office area. These properties are designed to be versatile, allowing a single tenant to house their corporate headquarters, sales team, or research and development staff in the same building as their manufacturing, assembly, or distribution operations.

For lending purposes, this asset class typically features an office-to-warehouse ratio ranging from 25% to 75%. This hybrid nature distinguishes it from "pure" industrial assets, which generally contain less than 10% office build-out.

Detailed Description and Mortgage Considerations

When underwriting a commercial mortgage for an Industrial with Office property, lenders evaluate several specific criteria that differ from standard warehouse or office buildings:

• Physical Configuration: These buildings usually feature higher parking ratios than standard industrial sites to accommodate office staff. They typically include grade-level or dock-high loading doors and ceiling clear heights ranging from 14 to 24 feet, which is lower than modern big-box distribution centers but sufficient for light manufacturing.
• Tenant Versatility: Lenders often view these properties favorably because they appeal to a wide range of industries, including biotech, telecommunications, light assembly, and professional services. This versatility can lead to lower vacancy risks over the long term.
• Build-Out Costs: The "office" portion of the property requires higher capital expenditures for HVAC, plumbing, and interior finishes. Mortgage providers will look closely at the Tenant Improvement (TI) allowances in the leases, as replacing a tenant in a highly customized flex space can be more expensive than in a standard warehouse.
• Valuation and Rent: Appraisers typically use a blended rental rate. The office portion commands a higher price per square foot than the industrial portion. Lenders will verify that the total rent is sustainable based on local market comparables for both office and industrial sectors.
• Zoning and Land Use: Because these properties invite more employees and customers than a standard warehouse, lenders confirm that the property complies with local zoning laws regarding "light industrial" or "business park" use, specifically focusing on traffic and parking requirements.

From a commercial mortgage perspective, the Industrial with Office tenant type is often seen as a resilient investment. While it carries higher management intensity than a simple "triple-net" warehouse, it offers a diversified risk profile by serving the needs of small-to-mid-sized enterprises that require a multifunctional physical footprint.