Keep reading
Blog/Investment Banking
Cold storage facility underwriting starts with a refrigerated warehouse that can trade at institutional industrial pricing or fall out of the buyer pool entirely, and the difference is rarely location alone. AEW puts the average cold storage building at roughly 40 years old, and notes that older properties often lack the racking and cooling systems needed for efficient, safe food distribution. Cresa lists the common failure points in those assets: lower clear heights, inefficient racking, outdated refrigeration, poor dock configuration, aging insulation, high energy demand and deferred maintenance. The underwriting question is whether this specific box, with this operator and this lease, converts specialisation into pricing power or into trapped capital expenditure.
Work through the analysis in this order, because each step constrains the next. A lease structure that shifts energy costs to the tenant changes net operating income exposure, while a low clear height or obsolete refrigeration plant changes the tenant pool before rent growth assumptions matter.
| Underwriting area | Dry industrial | Cold storage facility |
|---|---|---|
| Revenue unit | Rent per square foot | Rent per square foot, pallet positions, cubic capacity, or storage and handling fees |
| Physical diligence | Roof, slab, docks, clear height and site access | All dry industrial items, plus refrigeration plant, insulation and envelope, temperature zoning, utility capacity, drainage and food safety readiness |
| Operating cost exposure | Limited under a triple net (NNN) lease where the tenant pays taxes, insurance and maintenance | Depends on lease and operating model, because energy, labour and refrigeration maintenance can be material |
| Tenant or operator weight | Important to credit, secondary to the box | Frequently central to value, especially for operator-run assets |
| Capex categories | Roof, paving, tenant improvements and basic mechanical systems | Refrigeration replacement, insulation, racking, dock seals, backup power, controls and energy retrofits |
| Obsolescence driver | Location and market rent | Building functionality, as poor height or dock flow can shrink the tenant pool |
| Exit liquidity | Broad industrial bid | Deep for modern stabilised net lease product, thin for legacy or highly specialised assets |
AEW draws the distinction that drives everything downstream. Public cold storage warehouses rent space, often per pallet, and provide handling, packaging and distribution services. Private cold storage warehouses are leased more like traditional warehouses on a per square foot basis, often net leased to third-party tenants.
Under a private net lease, you are underwriting real estate credit: rent roll, lease term, escalations, reimbursements and residual box quality. Under a public warehouse, you are underwriting an operating business that happens to own a building, with labour, utilities, customer concentration and throughput risk inside earnings before interest, taxes, depreciation and amortisation.
Owner-operated assets require both analyses to run in parallel. Sale-leasebacks require a further layer: rent coverage against the tenant’s own financials, and evidence that the facility is mission-critical to its supply chain rather than a surplus node it will hand back at first renewal. Asset-specific drivers of this kind are exactly why sector-specific financial modelling beats a recycled industrial template.
Demand segments split by product. Conger identifies food, pharmaceuticals, flowers, cosmetics, chemicals, artwork and botanicals, served through restaurants, supermarkets, food service firms, importers and exporters, frozen food producers, agricultural producers and healthcare. Each segment carries different temperature specifications, audit expectations and contract duration.
Manulife, via InsuranceAUM, reports online grocery spending at $9.7 billion as of March 2025, up 21% year on year, with delivery sales up 30%. The same source puts cold storage inventory at approximately 300 million square feet, only 8.4% built after 2010, and about 2% of total industrial inventory. Those figures are useful for framing the market, but they still warrant verification against the underlying research before they anchor an investment committee memo.
Location analysis follows logistics cost. Proximity to population centres, ports, highways, intermodal hubs and production points reduces tenant transport cost and supports rent. The competitive set then needs to be defined narrowly, because a legacy freezer with 24 foot clear height does not compete for the same tenant as a modern 40 foot automated facility, even across the street.
Cresa frames modern cold storage around performance: clear height, dock capacity, refrigeration reliability, utility capacity, audit readiness, throughput, labour efficiency, food safety compliance and scalability. Score the asset against each item, then decide whether the gaps are fixable at a price the market will pay.
Run these checks before spending money on third-party reports:
Cresa’s retrofit conclusion is the one to hold onto. Feasibility depends on structure, clear height, insulation, refrigeration, utility capacity, site layout and expansion potential, and the cost can exceed what the asset is worth in its market. New construction faces its own constraints: specialised design, refrigeration investment, utility capacity, land cost, power availability, construction pricing and food-related operational complexity. That protects existing modern supply, while also explaining why some legacy assets never get fixed. Where retrofit is on the table, run it through a development feasibility model with cost overrun and timing sensitivities rather than a single-point budget.
Model freezer, cooler and ambient space separately. Blending them into a single rent per square foot hides the mix risk that drives both rent and cost.
For leased assets, start with the rent roll, lease abstracts, escalations, reimbursement mechanics, renewal options and restoration obligations. Then compare in-place rent to market rent by band, since a mark-to-market on freezer space behaves differently from ambient space. The mechanics of that comparison sit in any market rent versus in-place rent analysis.
For public warehouse models, underwrite pallet positions, utilisation, throughput, storage fees, handling fees and value-added services, then normalise for seasonality and customer concentration. A revenue line that looks stable at the facility level may still be exposed to a small number of food processors, retailers or pharmaceutical users.
On the expense side, tag every line with who pays it: landlord, tenant or operating company. Energy is the line that most often gets modelled incorrectly. Cold storage is energy intensive relative to dry industrial, and one competitor source cites figures suggesting a large multiple on kilowatt hours per square foot and energy at a materially higher share of operating expense, but those numbers require independent verification before use. The underwriting conclusion holds regardless: a fully passed-through utility cost is a tenant covenant issue, while a landlord-borne cost is a net operating income (NOI) exposure that compounds under power price inflation.
Build the capex schedule by system rather than as a reserve per square foot. Refrigeration overhaul, controls and monitoring, insulation, dock equipment, racking, roof, paving and energy efficiency projects each carry different timing and different lender treatment.
Value the asset three ways and reconcile the gaps:
Lenders size on DSCR and debt yield, then check loan to value or loan to cost. For cold storage, they add a second layer: lease term against loan term, tenant or operator credit, funded capex reserves for refrigeration, and completion risk on any retrofit. See how DSCR drives debt capacity before assuming proceeds.
Expect proceeds to shrink where the lease expires inside the loan term, where the landlord bears utilities, or where the refrigeration plant is near end of life without an escrow. Neuberger Berman describes a wider backdrop of higher rates and reduced commercial real estate liquidity creating refinancing stress and openings for capital solutions, which sharpens the cost of getting exit timing wrong.
One competitor source describes a 280,000 square foot Class A Atlanta acquisition leased to Lineage, with a rent stack of $19.00 per square foot freezer, $9.50 cooler and $2.50 ambient on an NNN basis, blending to $14.50 per square foot, capitalised at 5.75% for a $70.6 million basis, or $252 per square foot. Treat every figure as unverified competitor data rather than a market benchmark.
The arithmetic is straightforward. 280,000 square feet at $14.50 gives roughly $4.06 million of year one NOI. Divided by 5.75%, that supports approximately $70.6 million.
The useful work sits in the questions the blend conceals:
Run at minimum: utility cost inflation, tenant default or non-renewal, capex overrun, a refrigeration failure event, market rent below in-place rent, and terminal cap rate expansion. Layer a case where two occur together, since operator distress and re-tenanting cost tend to arrive as a pair.
Kill-or-reprice signals include a plant past useful life with no utility headroom for a replacement, clear height that excludes automated tenants, a food safety audit failure history, single-customer concentration in a public warehouse, and a submarket where no comparable asset has traded to a third-party buyer.
Before the letter of intent, collect the rent roll or customer contracts, lease abstracts, temperature zone square footage, 12 to 24 months of utility usage, tenant or operator identity and financials, historical NOI and capex history.
In confirmatory diligence, commission a refrigeration engineering report, a utility capacity review, roof, slab, dock and envelope inspections, environmental review, insurance quote and property tax reassessment analysis. Pull food safety audit history, maintenance logs, service contracts, zoning and permitted use confirmation, and an expansion or conversion feasibility view. Take tenant estoppels and use engineering findings to negotiate price, capex escrows, seller credits or lease amendments that pin down refrigeration and utility responsibility.
The decision rule is narrow. Underwrite the asset as attractive only where the specialised infrastructure widens the tenant pool and supports rent by more than it adds to capex, energy exposure and re-tenanting cost, and where at least one credible third-party buyer exists for the box in its current configuration.
Get that wrong on a legacy facility and the loss is not a few hundred basis points of return. It is an asset that cannot be re-leased without capital the market will never capitalise, held until the refrigeration plant forces the decision.
P.S. Want to sharpen your underwriting skills further? Check out our Premium Resources for real estate case studies, financial models and more tools to help you advance your career.
Join 80,000+ readers
One email a week: markets and finance news, the latest M&A deals and reports, investor biographies and deep dives.
Free forever. Unsubscribe anytime.
