Alterra IOS CEO on the outperforming real estate sector hiding in plain sight

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The rapid creation of artificial intelligence and quantum infrastructure is driving a boom in the often overlooked commercial real estate sector. Industrial outdoor storage (IOS) has suddenly begun to see significant demand and rent growth in an environment where supply is weak.

IOS covers any paved or gravel lot where companies can park construction equipment, vehicles, containers, materials, and essentially anything that can be stored outside. It acts as a basic back office support for moving anything outside the warehouse or factory across the country. It may have a structure on it, but the designation requires the structure to be less than 25% of the total area.

These areas are often located near highways, ports and other important infrastructure, but are now becoming key staging areas for data center construction. Developers are parking generators, tractors and other critical equipment worth millions of dollars, according to Alterra IOS, a leading player in the industry that has acquired more than 400 sites across the country.

“It’s real estate hiding in plain sight,” said Leo Addimando, CEO of Alterra IOS. “There’s over a trillion dollars of IOS real estate in the U.S., but most of it is owned by municipalities and the state. This is the shipyard, this is the airport. There’s about $300 billion of it, and most of it is owned by small local owners who are not corporate, but have their own businesses, and that’s the addressable market.”

The industry was once seen as a mom-and-pop-dominated corner of the CRE market, but it is now attracting major investments from big names. In August, Zenith IOS formed a $700 million joint venture with institutional investors advised by JP Morgan Asset Management for IOS properties across the country. According to Zenith’s statement, its gross asset value will be over $1.5 billion, making it one of the largest IOS portfolios in the US.

Again this year, Blackstone committed a $189 million loan to Alterra IOS for 49 properties and provided a $231 million loan to Jadian Capital for a portfolio of 43 properties.

Fundamentals are attractive and are becoming even more attractive, outperforming the bulk warehouse sector. While warehouses have attracted investor attention over the past five years given the growth of e-commerce, IOS has doubled rent growth and has a vacancy rate about half that of the bulk warehouse industry, according to a report from Newmark.

IOS rents have increased by 123% since 2020. Phoenix, Memphis and Atlanta lead the way in rent increases. In some markets, IOS offers rents similar to bulk warehouses when normalized per acre.

“It’s bigger than self-storage. It’s bigger than manufactured housing. It’s bigger than marinas. It’s bigger than trailer parks. It’s bigger than a lot of the real estate categories that are currently corporately owned,” Addimando said.

Alterra just announced the closing of a $150 million credit facility from funds managed by Blue Owl Capital. Initial financing for the facility was secured by 21 properties in 12 states. According to Alterra, subsequent financing of the loan commitment will support acquisitions by Alterra IOS Venture III, a closed-end fund with $925 million in equity commitments. The deal is Blue Owl’s first financing in the IOS space.

“Our investment in Alterra reflects Blue Owl’s focus on working with market-leading operators in high-growth, resilient sectors,” said Jesse Hom, chief investment officer of Blue Owl’s real asset platform. “We see strong and sustained demand for iOS assets and believe Alterra is well positioned to lead in this evolving space.”

IOS spans an estimated 1.4 million acres in the U.S., but well-located areas remain scarce due to zoning, according to Newmark, who points to users like FedEx, JB Hunt and Maersk on the shipping and logistics side. For equipment and bulk material storage, users will include TruGreen, ABC Supply and United Rentals, which has approximately 1,400 locations across the United States.

Fundamentals are strong and improving, but the sector is not without risk. Data center demand is huge, but some warn it’s already overheating. Still-high interest rates, tariffs and a weakening economy are also a concern; There are also more fundamental problems such as zoning.

“The number one biggest risk is zoning, which goes back to why land is so limited. Not only are they not building more IOS real estate, they’re not granting anyone zoning variances for IOS real estate,” Addimando said, explaining that municipalities are trying to reduce IOS areas because they don’t actually create jobs or create higher taxes.