May 2022

• Investing in the industrial real estate market has been very profitable for the past few years.
• Amazon has been a big driver of that, as it has taken a lot of available space.
• With Amazon pulling back, we could see a short term slowdown in the industrial market.

So those of you who know me personally probably think of me as just a cutting edge, smart as a whip real estate attorney. Or maybe the stunningly handsome host of the Greater Texas podcast. While those things are both true, I am also, along with some business partners, a commercial real estate investor.

As investors, we are always looking for the next opportunity. And while its been very difficult to find multifamily opportunities in a tight Texas market, many have been excelling in the industrial market. It has been the hot market in the last few years with lots of growth and some great investment opportunities.

But is that market starting to change a little? Is it cooling off? Is Amazon changing that? That’s what we talk about this week.

How does Amazon Affect the Industrial Market?

It is difficult to talk about the industrial real estate market in the United States without talking about Amazon. It is the 10,000 pound gorilla that eats up a ton of industrial capacity.

At the end of 2019 – before the pandemic – Amazon had approximately 160 million square feet of industrial space under its control. And, as we all probably know, the pandemic was very good (from a business standpoint) for Amazon. Because people were at home, online shopping soared. And with it, Amazon’s profits soared.

To meet that growing demand, Amazon had to acquire more industrial space for warehouses and distribution centers. As a result, by the end of 2021, it had approximately 385 million square feet of industrial space under its control. That’s a massive increase in a short period of time. And they did it (according to some) by sometimes paying 50% over market rates to acquire the space.

Obviously Amazon was not the only company acquiring industrial space. Lots of companies were also – for much of the same reason as Amazon. These rapid acquisitions helped drive the market and provide great returns to investors.

Dynamics are Changing for Amazon

But unfortunately, the good times do not continue forever. For multiple reasons, in the first quarter of this year, Amazon posted its first loss in a quarter since 2015. And that has caused it to rethink its growth models going forward.

As a result, Amazon is considering putting current projects on hold and dumping some of the square footage it has under its control. Inflation, supply chain issues, shopping changes have all lead to excess capacity in buildings throughout the country for Amazon. Indeed, here in Austin, Amazon put on hold a 193 acre distribution center in Robinson Ranch that was scheduled to be built.

What Does Amazon’s Change Mean for the Industrial Market?

This slowdown could potentially have a great effect on the industrial real estate market. In 2021, Amazon represented 15% of the new demand and absorption of new building in the industrial market. And now it says it is going to pull back on that and even get rid of some of its assets.

That cannot have anything but a chilling effect on the industrial market – at least in the short term. Again there are other factors that are still positive for the market. People still shop online. As we learn to live with COVID, international shipping will continue to pick up steam. As supply chain issues continue, people may need space to store goods. So in the long term, the industrial market will probably be just fine. Again, the demand is big enough without Amazon and the market is currently very tight.

But at least for the short term, it seems like it we could see a temporary slowdown. And that could hurt everyone who invests in industrial real estate – from A to Z.

• A Series LLC may be a useful structure for certain real estate investors.
• It can provide numerous individual and separate liability entities for a relatively low price.
• But you have to follow specific rules when setting up the Series LLC to get adequate protection.

We represent a lot of real estate investors who are in the process of purchasing property. It’s a big part of what we do. And that often includes helping our clients figure out the best ownership structure for their purchase. Usually that advice ends with us telling them to set up a limited partnership or (less often) a limited liability company.

But sometimes that’s not the best advice. There is at least one new(ish) structure – a Series LLC – that can really be a benefit to certain investors – especially those that are purchasing a number of rental homes. But to set up that structure, you have to make sure you follow the specific rules that allow for its formation.

So that’s what we are going to talk about this week. What is an LLC? How do you form it? And is it right for you?

What are the Basics of a Series LLC?

A Series LLC is exactly what it sounds like: a series of limited liability companies that are connected back to the parent limited liability company. This allows for assets and operations to be broken up across various series that work as individual LLCs, but still connect to the parent LLC.

With just one filing, therefore, an owner can set up an entity that can potentially house multiple single purpose entities. That obviously has the benefit of ease, saving time, and money.

But there are specific requirements that are required when setting up a Series LLC.

What are the Requirements of Setting Up a Series LLC?

To set up a Series LLC, you must first file a standard certificate of formation with the Secretary of State. There is, however, required extra language needed on the form in order to explain how the Series LLC is formed and how its liability works. This language is extremely important to include. If it is not done, each series may not be treated as a separate LLC with separate liability.

Then, once you have the initial LLC filed with the SOS, you do not need to file a certificate of formation with each subsequent series. You simply file an assumed name certificate with the Secretary of State for each series.

It is imperative that once you have a series underneath a parent LLC, you must keep all management, recordkeeping, and funds between the two completely separate. You must not commingle any funds between the series, or you may lose their separate liability status.

What are the Benefits of a Series LLC?

As you can see, there are a number of rules and policies you have to follow when setting up a Series LLC. So why do it? What’s the benefit?

The two main benefits to creating a Series LLC are cost and protection. The cost for filing a Series LLC rather than a set of normal LLCs is drastically different because the series only requires a Assumed Name Certificate for each series rather than filing a separate Certificate of Formation with the SOS with each series. And as long as you do this correctly, each series will be treated as a separate entity with its own liability. Thus providing separate protection at a relatively low cost.

As mentioned above, the ideal use of a Series LLC in real estate is for a company that wants to purchase numerous single family home rentals. For a relatively low price, the owner can set up multiple single purpose entities all rising up through the initial LLC.

Filing for a Series LLC can be inexpensive and prove to be much more viable in protecting assets. However, it is vital to follow the guidelines put in place by the State of Texas when filing to avoid any legal trouble that could result in seizure.