Rising interest rates and economic uncertainty aren’t enough to slow down one of the most active industrial investors in its bid to amass a dominant portfolio of small-bay warehouses across the Sun Belt.

BKM Capital Partners has already spent $2.8B on 72 assets so far this year, surpassing its original $2.3B target for 2026, Brett Turner, BKM’s recently promoted chief investment officer, told Bisnow in a videoconference interview this month.

Despite a rapid rise in borrowing costs and the broader expectation that dealmaking will slow, the Newport Beach, California-based firm is bulldozing through the broader market's hesitancy, expecting to top $3B across 79 assets by year-end, Turner said.

“That’s pretty heavy for us,” he said.

“We're in the value space, so we can always find good opportunities that are undervalued that have a great margin of safety that we can capitalize on,” he added.

BKM was founded by CEO Brian Malliet in 2013 with two employees as an institutional fund manager and operator of small-bay light industrial assets. Within three years, BKM grew to 36 employees and had $264M in assets under management. The company now has more than 200 employees and $8.1B in AUM across more than 235 assets, according to its website.

Turner started as the managing director of acquisitions, according to his LinkedIn profile, and now not only serves as partner and CIO for BKM but also resides on the company's executive committee and is the co-chair of the investment committee.

BKM has largely worked in tandem with Kayne Anderson Real Estate, a 42-year-old private equity real estate investor with $41B in AUM, to expand its footprint this year.

The bet on light industrial comes as the broader sector adjusts to a historic construction wave that put billions of square feet on the market. 

Unlike big-box warehouses — which are driving the 19% uptick in construction even amid relatively flat vacancy and rents, according to a third-quarter national Colliers report — smaller industrial properties that serve local and regional businesses needing space for storage or light production are largely undersupplied.

Mid-bay completions have declined 70% since their peak in late 2023, according to a BKM white paper, citing second-quarter data from CoStar.

The lack of available supply is giving investors like BKM the confidence to close on acquisitions even though the Fed hiked rates for the first time since 2023 and yields on 10-year Treasury bonds shot past 5% from below 4% in the course of six months.

"Groups are aggressively underwriting small-bay industrial because they want to buy," Tampa-based Lee & Associates industrial broker Jackson O'Neill said. "It's a case where there's also some buyers that maybe aren't in the small-bay industrial market, and they're willing to overpay for one or two properties in order to jump to the market and put a dart on the board."

The sector has a sticky tenant base, often made of essential uses, making for a stable cash flow profile, especially amid economic volatility, said Tom Stipanov, partner at industrial investment firm Longpoint Partners.

“What we like about it is that, irrespective of macroeconomic conditions, the fundamental tenant demand continues to drive outperformance and [net operating income] growth at the real estate level, independent of what capital markets may be doing,” said Stipanov, who sealed a $195M deal to buy a 729K SF, 10-building portfolio in Miami-Dade County at the beginning of September from affiliates of Brookfield.

Even though the 10-year has stabilized in recent weeks, inflation has been reheating, and oil prices on Friday hit their highest point since April, adding to a challenging debt environment that is leading to many buyers returning to the negotiation table to demand price cuts or concessions before closing.

Turner said he hasn’t seen any ongoing deals fall through, and BKM hasn't asked sellers to lower their prices for deals in the works.

“We're a little bit more sensitive to that than the average buyer,” Turner said. “We do a lot of business and, obviously, a lot of volume. Our reputation is pretty important to us, so we'll absorb a lot more than the next guy.”

Turner said BKM has seen very little impact on assets the company already owns because it hedges 100% of its debt.

The venture’s multibillion-dollar push kicked off in February, but its biggest deal by far was the $1.8B it paid Link Logistics for a 90% occupied, 8.5M SF portfolio of 51 multitenant industrial properties across California, Washington, Texas and Georgia. 

BKM, which is primarily targeting assets in the Southeast, Texas and California, has kept up the pace, dropping $174M on three industrial acquisitions in Florida from September to October.  Between 75% and 80% of its deals are sourced off market, Turner said.

That includes a 210K SF multitenant business complex and a 61K SF small-bay industrial property in Fort Lauderdale and a 545K SF light industrial portfolio in Central Florida.

BKM plans to invest millions in upgrades to the exteriors, roof and HVAC of the buildings it's buying.

It isn’t alone in the push to get in on the light industrial sector. For some investors, the fundamentals supporting projections of rent growth are enough to justify paying a premium today, O'Neill said.

"They've got money to spend, and they're not going to make money if they're sitting on the sidelines," O'Neill said. "They're ready to jump in and potentially pay a premium today, with the idea that rents are going to continue to grow."

Turner said he has noticed a broader pause in acquisitions and a widening of the bid-ask spread between buyers and sellers. The recent volatility is also motivating them to do more due diligence on potential sellers.

“We're seeing a lot of sellers that had planned to take their assets to market. If they can hold till next year and wait another six months, they’re doing that,” Turner said.

“We do a lot of vetting before we dig into a property right now to make sure that that seller is actually a seller at today's market, because it's fundamentally shifted within the last three to four weeks,” he added.

Turner, who was in the midst of signing on two more deals at the time of the interview, said BKM has approximately $200M in acquisitions totaling 900K SF under escrow. After that is a bigger question mark, considering the uncertainty roiling the real estate capital markets.

“That's going to slow down acquisition volume until things settle out,” he said. “The market hates volatility. Doesn't really matter where it lands; it just needs to land.”