Small bay “flex” industrial — the primary focus for Patriot Flex Fund (Fund 6).

My team and I look at a lot of deals. Most of what you learn in this business comes from the ones you walk away from.

This one came to us off-market: a small bay “flex” industrial park in an exurban growth corridor northwest of Fort Worth. On paper, exactly what we buy. I passed.

Here's the honest breakdown — real numbers included.

Deal Snapshot

(details anonymized — the listing is private)

• Asset: Small Bay “Flex” Industrial Park
• Location: Northwest DFW exurb, on a major highway in the growth path
• Size: 69,150 SF across 9 buildings, 17 suites
• Vintage: Built 2018–2024, metal construction, 18' clear
• Occupancy: 95%, 17 tenants, staggered short-term leases
• Blended rents: ~$10/SF
• Broker's in-place NOI: ~$652K
• Ask: $10.37M — $150/SF, a 6.3% cap rate on their numbers

What I liked

• Right product, right corridor. Small bay “flex” is the most supply-constrained segment of industrial, and this sits directly in the path of DFW's northwest expansion. Contractor and service tenant demand out there is real.
• The size and unit mix are exactly right. 69,150 SF is real scale for this asset class, and the suites range from 1,250 SF up to 10,000 SF. That range serves everyone from the one-truck contractor to the growing regional operator — and it's what creates a genuinely diverse 17-tenant mix with steady 3% annual escalations. Durable income without heroic assumptions. That's the profile we buy.
• The heavy building work is done. Newer construction with a fresh exterior renovation — paint, façade, awnings, doors. The buildings themselves show well and there's no surprise roof in year two.

The layout that makes this asset class work: multiple buildings, small suites, grade-level doors, and room for tenant vehicles.

What I didn't like

• The taxes haven't been reassessed to where Texas will take them. This is the headline issue. The OM underwrites $78K in property taxes — the seller's old basis, not yours. Texas reassesses on sale, and at a $10.37M purchase price that line lands closer to $230–250K. Yes, that's an aggressive reassessment — but it's typical of Texas, and here's the part that kills the deal: even if the increase comes in at HALF what we're calculating, you're still losing $80K+ of NOI at closing.
• The pricing expectation doesn't match the rents — or the product. $150/SF isn't a deal killer on its own — I'll pay it when the income supports it. But at $10 NNN market rents, that price is too aggressive. And the product isn't finished: portions of the drives are still gravel. That drags down the quality of the asset, and paving it is a significant capex check the next owner writes — both to stay competitive long term and to get maintenance costs down. I'm not paying a finished-product price and then finishing the product myself.
• The submarket is too thin to backfill. Let me be clear: the 1.7-year WALT doesn't bother me. In small bay, short leases are a feature — they're your mechanism for rent increases and your flexibility to re-lease to a better user. What bothers me is WHERE you'd be doing it. This is 30–35 minutes outside downtown Fort Worth, in a market of maybe 2,000–3,000 people. Lose a few tenants and backfilling gets very difficult in the short term. It's a good long-term play as the corridor grows — but I don't want to pay for all of that value upfront and wait a decade to realize the real gains.

Seller Motivation Check

Every deal we break down in The Patriot Deal Room gets this check, because it's the most underrated variable in real estate: WHY is the seller selling?

Here: no distress, no debt maturity, no partnership breakup, no life event. They built this recently, they have a good basis, and they're simply trying to max value at the top of the market.

That matters for two reasons:

• You have no negotiating leverage. An unmotivated seller doesn't need your offer. The price only moves if the market tells them no for long enough — and you don't want to be the buyer who says yes first.
• You're buying at their cap rate, not the market's. They're asking a 6.3% cap rate today for an asset that will probably trade at a cap rate north of 7% down the road. Quick translation for anyone newer to cap rate math: a cap rate is the property's annual net income divided by its price — and price moves INVERSELY to the cap rate. The same NOI valued at a 7% cap is worth roughly 10% less than at a 6.3% cap. So if cap rates drift from 6.3 to 7+ over your hold, you need years of income growth just to claw back to the price you paid.

Motivated sellers create discounts. Unmotivated sellers create traps. This was the second kind.

Now let's read the P&L like an operator

Brokers love to shrink the expense load. It's how a 5-cap deal gets dressed up as a 6.3. This operating statement is a textbook example.

Here it is — every line as printed in the OM. The highlights are ours:

• Management: $11,565. That's 1.4% of revenue — on a statement whose own assumptions row says 3%. Nobody properly runs a 17-tenant park for $960 a month. Someone has to manage leases, collections, vendors, and turnover — the real cost to run this property right is 5% of revenue, about $40K. And before you say “it's NNN, just pass it through” — every dollar you pass through raises your tenants' total occupancy cost, which makes you LESS competitive on rents in a rural market. Triple net isn't a magic eraser.
• Marketing: $0. Zero. Seventeen small tenants on short leases, with rents stepping up 3% a year — you WILL have turnover, and you need a pipeline of replacement tenants ready. Budget at least $6K a year or watch your vacancy allowance become fiction too.
• Repairs: $2,418 — with no payroll anywhere on the statement. That's 3.5 cents per square foot. These suites house hard businesses — contractors, collision, fabrication. Someone has to be on site enforcing the rules, handling turns, and fixing what breaks. Between staffing and real maintenance, call it $30K, not $2,400.
• Taxes: $77,904. The seller's basis, not yours. Covered above — Texas reassesses on sale.

Now rebuild the statement with real numbers and watch what happens to the cap rate:

Roughly $62K a year of missing operating expenses before you even touch the tax line. Stack the tax reassessment on top and the broker's $652K NOI becomes $427K–$508K on day one.

Put plainly: you'd be paying a 6.3% cap rate for an asset that actually operates at a 4.1% to 4.9% cap rate on day one. Same building, same tenants — the difference is just honest math on the expenses.

Why I made the call

The deal isn't underwritten on real numbers, and the value is all priced in upfront.

Real expenses, real taxes, real math: you'd pay a 6.3% cap rate and own a property performing at a 4.1%–4.9% cap rate from day one — with a likely exit at a cap rate north of 7%, in a submarket too thin to backfill if tenants walk. Paying a low cap rate going in and selling at a higher cap rate coming out is how you lose money on a “good” asset.

This corridor will be a winner eventually. But an unmotivated seller is asking me to pay for the next decade of growth today and then wait a decade to collect it. That's their gain, not mine.

Good asset. Wrong price, wrong tax math, wrong expense load, no seller motivation. Pass.

The lesson: never underwrite off the broker's expense column. Rebuild the P&L yourself, reassess the taxes yourself, and price the deal off YOUR numbers. The cheapest deals to kill are the ones you kill in the first hour.

The Patriot Deal Room breaks down real deals we underwrite at Patriot Holdings — the ones we buy and the ones we don't. Follow along, or reach out if you want to see what we ARE buying.