Selling a Specialized Industrial Property: 3841 Merchant Street
Most industrial properties in Madison can be priced with help from nearby sales, and we track more than 800 local industrial properties. Selling a specialized industrial property, like the former Sutton Transport facility at 3841 Merchant Street near the Dane County Regional Airport, required a different approach.
The 9,900 SF truck terminal had 21 dock-high doors, one grade-level door and 25 trailer stalls on a mostly paved 3.44-acre site. There were no competing truck terminals for sale in Wisconsin. We brought it to market at $2.3 million and ultimately sold it for $2.25 million to an affiliate of Kuna FoodService seeking an Upper Midwest distribution hub.
Valuing a Specialized Industrial Property Without Obvious Comparables
A conventional 10,000 SF industrial building might be evaluated using price per square foot, rent potential, clear height, loading, age, condition and location. Those measures only went so far here.
The cross-dock layout, high door count and large yard were valuable to a transportation user, but they also narrowed the buyer pool. A warehouse user needing just a few docks could view much of that infrastructure as unnecessary. A trucking or distribution company could see the docks, trailer parking and building configuration very differently because those features are difficult and expensive to replicate.
The risk was undervaluing the property. If we had relied primarily on vacant Madison-area industrial buildings of similar size, we could have missed how much a terminal user might pay for the specialized infrastructure.
Establishing the Market
With no similar truck terminals recently sold in the Madison area, we expanded our research to terminal sales in outstate Wisconsin along with Iowa, Minnesota, Missouri, Illinois and Indiana.
We compared transactions using price per dock door, then looked at age, functionality, acreage, yard area, location and door configuration. We also considered site size because trailer parking, outside storage and circulation area can contribute substantial value to a truck terminal.
The research supported a $2.3 million asking price and gave us a rationale to explain the pricing to buyers and brokers.
The eventual $2.25 million sale price equated to about $227 per square foot, a very high figure for a vacant industrial building of this size in Madison. Against conventional local sales, that price could have looked aggressive. The Midwest truck-terminal transactions helped show why the specialized infrastructure supported a different valuation.
Finding the Buyer
Our buyer search also went beyond Madison. We targeted transportation companies, terminal operators, courier services, industrial users and brokers throughout the Midwest.
The outreach produced several tours and ultimately reached an affiliate of Kuna FoodService near St. Louis. The company was looking for an Upper Midwest distribution hub. While the buyer would not use every dock, the terminal configuration gave it a facility already suited to the basic operation instead of requiring a major retrofit or new construction.
After some back-and-forth negotiation, we agreed on $2.25 million, just 2% below asking.
The existing lease still had to be terminated for the owner-occupant buyer to close.
Solving the Lease Problem
The property was leased even though the tenant was no longer using it. To deliver the building to the buyer, the seller needed an early lease termination.
Our client had spent her career running a trucking company and had never negotiated a lease buyout. She was concerned about whether an agreement could be reached. After the offer was accepted, I took the lead, working with the tenant and legal counsel to negotiate terms that allowed the sale to move forward.
The lease termination also generated additional consideration for the seller.
Later, the buyer identified a property-condition issue involving the tenant. That required a second negotiation. We resolved it without losing the buyer, disrupting the closing or jeopardizing the lease buyout.
The Outcome
3841 Merchant Street sold for $2.25 million, plus the additional consideration generated through the lease termination. The sale closed 94 days after the original proposal came in and less than two months after the purchase agreement was signed.
If you own a specialized industrial property, the sale down the street may tell you very little about what your building is worth. For 3841 Merchant Street, we looked across five states for useful sales data before establishing the asking price and ultimately found the buyer outside Wisconsin.
“Chris did an excellent job, generating strong interest quickly and producing an offer very close to our asking price, with a quick closing timeline. Once we had a deal, he also took the lead on negotiating an early lease termination. His experience, responsiveness and ability to solve problems throughout the entire process made it a pleasure to work with him.”
Deb Sutton, Former Owner, Sutton Transport
Summary
- Property: 9,900 SF specialized truck terminal on 3.44 acres near the Dane County Regional Airport
- Challenge: No comparable truck terminals were available for sale in Wisconsin
- Strategy: Researched terminal sales across the Midwest and evaluated pricing based on dock doors, acreage, yard space, functionality and location
- Result: Sold for $2.25 million, just 2% below the $2.3 million asking price
- Buyer: Affiliate of Kuna FoodService seeking an Upper Midwest distribution hub
- Additional value: Negotiated an early lease termination that generated additional consideration for the seller
- Timeline: Closed 94 days after the original proposal and less than two months after the purchase agreement was signed
Why was 3841 Merchant Street difficult to value?
The property was a specialized truck terminal with 21 dock-high doors, 25 trailer stalls and a large paved yard. Because there were no comparable truck terminals for sale in Wisconsin, typical Madison industrial sales did not provide enough information to establish its value.
How was the asking price for the property determined?
Oakbrook researched truck-terminal transactions throughout the Midwest and compared factors including price per dock door, acreage, yard area, age, functionality, location and door configuration. That research supported an asking price of $2.3 million.
How much did 3841 Merchant Street sell for?
The property sold for $2.25 million, approximately 2% below the asking price. The seller also received additional consideration through the negotiated early termination of the existing lease.
Who purchased the former Sutton Transport facility?
An affiliate of Kuna FoodService purchased the property as an Upper Midwest distribution hub. The property’s existing terminal configuration allowed the buyer to acquire a facility already suited to its basic operational needs.
How long did the sale take to close?
The transaction closed 94 days after the original proposal was received and less than two months after the purchase agreement was signed.
How do you sell a specialized industrial property without good local comparable sales?
Specialized properties may require research beyond the immediate market. Comparable transactions from other regions, along with property-specific factors such as specialized infrastructure, loading, yard space, acreage and intended use, can help establish value and identify the buyers most likely to recognize it.
Chris Caulum, SIOR
Vice President of Commercial Brokerage
Chris specializes in industrial and office real estate throughout Madison and South-Central Wisconsin, helping owners, investors, and businesses make informed commercial real estate decisions.
608-443-1040
ccaulum@oakbrookcorp.com
Meet Chris Caulum