From Breweries to E-Commerce Hubs, Why Small Bay Industrial Delaware Statutory Trust Properties Are Quickly Becoming Real Estate’s New Rock Star

The best way to describe the small bay industrial asset class is to compare these assets to traditional large industrial buildings. By contrast, small bay industrial DST properties are distinguished by their smaller square footage and ability to accommodate a large variety of tenants. Ranging from 1,000 square feet to 10,000 square feet, these small bay industrial properties are designed with smaller, more flexible layouts and suite sizes, allowing them to accommodate a wide range of users that can range from artisans to last mile e-commerce distribution nodes.

Another unique feature inherent to small bay industrial facilities is their strategic placements in infill locations, close to consumer traffic. This proximity to urban cores makes them ideal for "last mile" distribution centers, as they are situated just a short distance from the ultimate destination of products—consumer homes and businesses. By being closer to end-users, these facilities enhance delivery speed and efficiency, catering perfectly to the demands of modern e-commerce and quick-turnaround logistics.

Taking a sweeping drone's eye view of the industrial real estate landscape, there are several macro trends that bode well for the small bay industrial real estate asset class.

First, the E-commerce boom has been a significant driver in the demand for small bay industrial assets. Because consumers demand faster delivery times - even over cheaper prices- the demand from e-commerce businesses searching for last-mile distribution hubs located closer to urban centers has boosted the strategic importance of smaller industrial facilities. Small bay industrial properties are perfectly suited for this role, providing the necessary proximity to consumer markets, and the flexibility to accommodate a wide variety of business models and their respective inventory turnover requirements. This trend is expected to continue as online shopping becomes even more ingrained in consumer behavior.

Another major trend that is fueling the popularity of this small bay industrial asset class is the rise of small and medium-sized enterprises (SMEs). According to a recent article in Reuters¹, entrepreneurship in the U.S. surged from an average of 430,000 new business applications per month in 2024, a 50% increase over 2019. This trend reflects a dynamic and growing SME sector that is significantly contributing to economic growth and the heightening the need for flexible business operations like small bay industrial spaces. In addition, SMEs need adaptable spaces that can grow or shrink in lockstep with their business needs. Small bay properties offer the perfect solution, allowing businesses to modify layouts without incurring significant overhead larger industrial facilities face.

The small bay industrial asset class can also support an astounding range of SME industries, that can include breweries, MMA gyms, custom furniture makers, 3D printing facilities, trade and construction companies, automotive repair facilities, and even pickleball courts!

Small bay industrial properties have captured the spotlight among enlightened DST real estate investors because they offer multiple advantages that their much larger, single-tenant industrial facility relatives can’t provide.

For one, the average large industrial facility is typically occupied by a single tenant that has a 10–15-year long-term NNN lease in place. However, small bay industrial assets generally have shorter weighted average lease terms (WALTs) that are typically less than 5 years. This benefits investors on two fronts. The first is that these shorter lease terms can rapidly increase property values in a rising rent environment. In addition, shorter lease terms provide owners the ability to adjust rents more quickly, providing some inflation protection that longer-term leases in larger industrial buildings can’t match.

In addition, small bay industrial properties are also incredibly resilient to ebb and flow of economic tides because they have a higher number of leasing opportunities compared to single-tenant large industrial properties. As a result, the light bay industrial asset attracts a broader range of leasing prospects, leading to consistently strong demand across a diverse mix of tenants, regardless of market conditions or cycles.

Finally, the economic theory of "supply and demand," first articulated by Scottish economist Adam Smith in his landmark work, The Wealth of Nations, hints at another key benefit for small bay industrial properties.

Lack of suitable land and urban zoning restrictions have placed high barriers to new construction which drives demand, rent growth, and appreciation.

This small bay industrial portfolio offering is fully debt-free investment that was created with the purposeful investment strategy of mitigating common risks associated with real estate debt, such as mortgage foreclosure, cash flow sweep clauses, and go-dark provisions.

Investors can sleep well at night knowing there is no lender on the buildings.

The portfolio comprises two Texas-based multi-tenant flex properties located in Katy and Richmond, TX. The entire portfolio totals 69,195 rentable square feet and includes 5 buildings that are 100% leased to an array of tenants.

As a debt-free DST investment, the Cove Texas Small Bay 85 Flex DST offers investors peace of mind with no lender or foreclosure risk. Investors can also benefit from potential monthly income via ACH direct deposit.