How Industrial Real Estate Gets Financed: A Capital Markets Perspective

By Sam Laird

Sarah Johns leads debt capital markets for Link Logistics, one of the largest industrial real estate firms in North America. She and her team are responsible for balance sheet management across the company's portfolio, raising and managing the debt that finances everything from individual warehouse acquisitions to ground-up development. In this Q&A, Sarah explains how capital markets connect to the physical world of industrial real estate, how interest rates shape investment and lending decisions, and the market trends she's watching most closely.

When most people picture industrial real estate, they think about warehouses—big buildings on the side of a highway. How do capital markets fit into that picture?

Sarah: Debt capital markets provide the financing that makes it possible to acquire, develop and operate industrial real estate. Firms that own industrial assets rely on debt as a capital source to acquire properties, develop new warehouses, fund capital improvements and support day-to-day operations. Without that financing, the practical ability to own and grow a portfolio of warehouses and distribution facilities is difficult to achieve, particularly at scale.

My team specifically manages the firm’s balance sheet and capital structure, focusing on financing strategy, capital sourcing and debt management for Link Logistics. We raise financing across a few different sources, including traditional balance sheet mortgage loans provided by banks, life companies, or other non-bank capital sources, securitized financings backed by the real estate and issued in the bond market, and various unsecured facilities as well. My team stays closely integrated with our property management, leasing and asset management teams, tracking asset and business plan performance to understand capital needs across our expansive portfolio and optimally strategize financing requirements for each investment such as leverage, term, cost of capital, capital source, etc.

How do interest rates affect industrial real estate investment and development?

Sarah: Interest rates affect nearly every major decision in owning and operating industrial real estate. When rates rise, the cost of capital increases. Since debt is a significant component of how real estate is capitalized, that has real consequences throughout the system.

On the acquisition side, rising rates tend to push cap rates wider. Buyers generally want to maintain a spread between the interest rate on their debt and the return on their investment. So, as their cost of capital goes up, the yield they require on an acquisition goes up too, which pushes property values down. Similarly, in rising interest rate environments, cost of capital to develop properties rises as well, impacting yields at which developers are willing to develop properties, typically slowing deployment of development capital. 

When financing conditions improve—in other words, when rates come down and banks become more willing to lend—you tend to see the reverse: Cap rates compress, leverage becomes more available and transaction volume picks up. That dynamic works its way through acquisitions, dispositions, development and refinancings across the market.

It also affects the companies that use warehouse space. As interest rates rise, their operating margins come under pressure too, which can influence how much space they want to lease or whether they want to expand. The rate environment isn't just a balance sheet question—it shapes the demand side of the market, as well.

Industrial real estate has held up better amid market volatility than most commercial real estate asset classes. Why do lenders and investors still view it favorably?

Sarah: Lenders favor industrial real estate because it has consistently performed through periods of broader market stress. Industrial held up through COVID and through the rapid interest rate increases of 2022 and 2023. The asset class’s net operating income has generally remained stable or grown across cycles, which gives lenders confidence that the cash flows backing their loans are durable.

A lot of that resilience comes from structural demand drivers that aren't going away: e-commerce growth, last-mile delivery requirements driven by population density and strong tenant retention in infill markets. These are long-term shifts in how goods move and where warehouses need to be located, not just cyclical tailwinds.

There's also an operational simplicity argument that matters to lenders. Industrial is mostly triple-net leased, a common structure in which tenants manage or are responsible for their own operating expenses. And warehouses typically don't require the capital-intensive operations or maintenance like that of a Class-A office tower or a hotel. That relative simplicity, and limited impact on a warehouse user’s balance sheet and lease duration,  translates into more predictable income, which is exactly what a lender is underwriting when they evaluate a loan.

Why do lenders and investors pay special attention to infill industrial real estate markets specifically?

Sarah: Lenders and investors favor infill industrial real estate markets because they combine strong, durable demand with limited new supply—the two things that most protect the value and cash flow of an asset over a longer period of time.

On the demand side, infill assets are positioned within dense population centers, close to the end consumer. That's where e-commerce fulfillment and last-mile delivery operators need to be—the closer they are to the customer, the more efficiently they can operate. That proximity drives consistently strong occupancy and tenant retention, which makes the cash flows backing those loans more predictable.

On the supply side, infill markets are by definition constrained. There isn't a lot of land available to build new competing product. Zoning restrictions in many urban and suburban markets are also tightening around new industrial development. That supply limitation protects existing assets from being undercut by new construction, which again supports stable values and cash flows over time. Lenders notice all of that: They're underwriting not just today's occupancy but also the long-term defensibility of the asset.

What makes one industrial real estate market more attractive than another from an investment and capital markets perspective?

Sarah: From a capital markets perspective, attractive industrial markets tend to share three primary characteristics: high population density or growth, strong transportation access and meaningful barriers to new supply. 

First, population density. The denser the population, the greater the consumption volume, which means more demand for warehouse and distribution space to serve that consumption.

Second, transportation access matters for both the flow of goods and attracting labor. Lenders and investors want to see assets that are well-connected: highway access, proximity to ports, airports and rail infrastructure. These aren't just operational conveniences—they're indicators of a market's long-term relevance to logistics as well as key industrial user demand drivers. They drive localized supply chains, onshoring manufacturing needs, and easy access to populations centers. A warehouse in a market with poor connectivity is more exposed to demand risk over the life of a loan.

Third, barriers to entry. Markets where it's difficult or expensive to build new product, whether because of land scarcity, zoning restrictions or both, protect existing assets from new competition. When lenders are evaluating a long-term loan, the ability to underwrite that the market won't be flooded with new supply that would outpace demand is meaningful.

What trends are shaping industrial real estate demand right now?

Sarah: The three industrial real estate trends I'm watching most closely are e-commerce and consumer health, onshoring and domestic manufacturing, and data center spillover demand.

E-commerce has been the defining demand driver for industrial real estate for over a decade, and the health of the consumer—spending trends, sentiment, how interest rates affect household finances—is a leading indicator of what happens to warehouse demand downstream. We track Fed data releases and government economic statistics closely for that reason.

Onshoring is newer but increasingly tangible. We're seeing real evidence of it in our own portfolio, particularly in markets like Los Angeles and Phoenix, where traditional import-driven logistics tenants are being joined by manufacturers moving production back to the U.S. That's a meaningful new source of industrial demand, and it changes how we think about certain markets and the long-term strength of their tenant base.

Data center spillover is the third. We are seeing this play out in markets including Atlanta, Memphis, Columbus, Reno and many more. As construction accelerates, it generates ancillary demand for industrial space—from contractors staging equipment to the suppliers and maintenance operators who service those facilities once they're running. All three feed directly into how we approach financing: how we pitch assets to lenders, how we underwrite future cash flows and how we think about the long-term positioning of the portfolio.

Explore Link Logistics' portfolio of warehouse and distribution space for lease to learn more about industrial real estate opportunities across North America.