Cold Storage 3 – Risks for Investors and Developers

Commercial real estate developers and investors know the risks that come with any property investment, but when it comes to cold storage properties, those risks can be even more significant.

Cold storage facilities, which are used to store perishable goods such as food and pharmaceuticals, are essential to the global food chain supply, but they come with unique risks

1.)    High capital costs - Cold storage facilities require specialized equipment, including refrigeration systems, insulation, and backup generators, which can be expensive to purchase and maintain. This can make it difficult for investors to justify the initial investment, especially if they are used to traditional industrial storage properties with lower capital costs.

2.)    High Energy costs - The refrigeration systems used to keep the facility at the required temperature consume a considerable amount of energy, which can be expensive. Energy costs can fluctuate significantly, making it challenging to estimate ongoing operational costs accurately.

3.)    Specialized Knowledge - Investors need to understand the specific requirements for food storage, including temperature control, hygiene, and safety. Failure to comply with these regulations can result in costly fines and damage to the property's reputation.

4.)    Need for Rail Access – Some larger tenants may require active rail access as part of their lease commitment. This may limit the locations that work for development opportunities.

Because cold storage has a lot of nuance to ensure a successful investment, make sure to seek advice from experienced capital and legal professionals.

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