The $25 million bet

Rance Gregory last week made a $25 million bet that rents on industrial buildings in the Reno area will rise.

Gregory, chief executive officer of NBS Real Estate Capital LLC, negotiated the purchase of four buildings in Sparks totaling 704,751 square feet of industrial space a big entry into the Reno industrial market for his company based at Portland, Ore.

"We believe rents will grow, even in older product," Gregory said, noting that the vacancy rate in industrial space now stands at a squeaky-tight 5.4 percent.

Even though space is tight and even though pricey land and ever-more-expensive construction have pushed the cost of new buildings sharply upward, rents on medium-sized and big industrial spaces in the area haven't gone up much in the past year.

That, Gregory believes, simply can't continue.

Investors won't have unlimited patience with low returns on new buildings, he said, and strong demand for industrial spaces will allow owners to ratchet up rents.

And even if rents don't move up as Gregory expects, NBS Real Estate Capital sees potential upside by relocating some of the tenants in the four buildings.

Those moves, he said, are likely to open some big spaces including the possibility that a 73,796-square-foot building at 200 S. 18th St. that's part of the portfolio could be opened entirely. That would allow leasing of the building to a single larger tenant or perhaps its outright sale to an industrial user.

The other three buildings in the portfolio are in the area of Southern Way and Greg Street:

* A 108,240-square-foot building at 900-1000 Southern Way.

* A 422,715-square-foot building at 905-1485 Southern Way.

* A 100,000-square-foot building at 1280 Southern Way.

The buildings are 87 percent leased to tenants who occupy spaces ranging from 12,000 to 225,000 square feet.

NBS Real Estate Capital has been scouting the Reno area for industrial properties for a couple of years, Gregory said, and continues to look for more potential acquisitions.

"We don't hesitate to buy industrial in the Reno area," he said. "It's a crucial hub for distribution."

The opportunity to buy a portfolio of four industrial buildings in the area, he said, was particularly attractive because it provides the critical mass that wouldn't be available through scattered purchases of smaller buildings.

And NBS projects continued demand for older industrial properties in the heart of the metropolitan area even as big distribution centers and manufacturing facilities are developed almost exclusively in outlying areas such as Stead, Spanish Springs, Fernley and the Tahoe Reno Industrial Center.

Industrial space in Sparks and Reno will draw continued interest from companies that want to be close to their labor force, Gregory said.

He said the portfolio of properties purchased by his company also is strengthened by its proximity to Interstate 80 Highway 395 as well as Reno-Tahoe International Airport and rail service.

This isn't the first venture for NBS Real Capital into Reno. The company joined with Capstone Partners LLC of Portland to buy the Museum Tower office building at 100 W. Liberty in 2004.

NBS operates two real estate investment funds, the Morrison Street series, that raise money from pensions funds, foundations, trusts and wealthy individuals. It's invested $300 million in the West in the past two years and looks to invest another $150 million in real estate this year.