Distribution Center Financial Case Study 615 Aviation Rd, Reading, PA (Berks Park 183)

615 Aviation Rd, Reading, PA 19601

Property & Tenancy: The subject property at 615 Aviation Rd, Reading, PA 19601 is a newly built (2023) Class A industrial distribution facility of 251,028 SF, fully leased to FedEx (single tenant) on a long-term NN lease through March 2033 at $10.51/SF. This trophy logistics asset occupies 37.6 acres in Berks Park 183 (Reading, PA) and features modern specifications suitable for a major distribution hub. The FedEx lease provides a stable income stream backed by an investment-grade tenant, which is a critical positive from a lender’s perspective.

Current Performance: According to CMBS financial reports, the property generated $1.85 million in net cash flow over the first 9 months of 2024 This equates to an annualized Net Operating Income (NOI) on the order of $2.5–2.7 million, aligning with the lender’s underwritten stabilized NOI of ~$2.77 million per year With minimal landlord expenses due to the NN lease structure (tenant covers taxes, insurance, etc.), virtually all rental revenue flows through to NOI. At the in-place rent level, the property’s stabilized income yield (cap rate) is around 6.1%, based on the January 2024 sale price of $43.13 million ($171.83/SF) and corresponding NOI. This yield is well above loan servicing needs, resulting in a healthy debt-service coverage (NCF DSCR ~1.65×) and a moderate loan-to-value (~55%), indicating a conservative leverage position from the lender’s viewpoint (ample income cushion and equity buffer).

Valuation & Market Position: The January 2024 transaction at $43.13 M (6.12% cap rate) underscores strong investor confidence in the asset’s quality and cash flow durability. The price of $171.83/SF significantly outpaces the submarket – Berks County industrial sales averaged roughly $80/SF over the past year (median ~$70). Even high-value comparables in the area traded lower, such as a new 518,000 SF vacant logistics center at $111/SF and a fully leased 334,000 SF facility at $123/SFfile-rccuofu9gso1pmhq9bwtxb. The subject’s premium pricing reflects its prime attributes: brand-new construction, modern high-bay design, and a long-term corporate tenancy, all of which compress the required cap rate relative to typical local assets. Moreover, the in-place rent of $10.51/SF far exceeds average market rents (≈$7.10/SF for logistics space in Berks, and ~$7.36/SF across all industrial product). This indicates the property’s above-market rent level, which is attainable due to its trophy status and build-to-suit nature for FedEx. From a lender’s perspective, the rent premium boosts current cash flow and value, though it also warrants examination of market re-leasing risk at lease expiry (i.e. whether future tenants would pay similarly high rents if FedEx were to vacate).

Outlook: The feasibility analysis demonstrates that 615 Aviation Rd is a financially robust asset with a stabilized NOI ~$2.7 M that supports both its current valuation and debt structure. The yield-on-cost for the original developer appears very favorable – if development costs were in the ~$110–$120/SF range (comparable to a recent vacant sale at $111/SF), the FedEx rent implies a ~9%+ yield on cost, substantially higher than prevailing market cap rates in the mid-7% range for Berks industrial assetsfile-rccuofu9gso1pmhq9bwtxb. This value creation highlights a built-in equity cushion and strong project economics. Overall, market fundamentals in the Berks submarket remain stable – vacancy around 7.6% (Q2 2025) with slower new supply coming online. While rent growth has moderated to ~2.3% recently, the long-term outlook is cautiously optimistic, and the subject’s lease is locked in well above current market rates, ensuring reliable near-term income.

Conclusion (Feasibility): 615 Aviation Rd stands as a highly feasible and lender-friendly industrial investment. The combination of strong in-place cash flow, a long-term FedEx lease, and a superior Class A facility underpins its valuation and debt service capacity. The asset’s performance metrics (NOI yield, $/SF pricing, rent level) all benchmark favorably against the local market, reaffirming its position as a top-quartile property in the Berks industrial submarket. From a lender’s perspective, the deal’s structure (≈55% LTV, ~6.1% cap rate vs. ~7.5% market cap) provides significant risk mitigation – the property could weather cap rate expansion or rent softening and still cover debt obligations comfortably. The premium sale price and tight cap rate achieved indicate that institutional investors view this distribution center as a low-risk, long-term income play, a sentiment echoed by its inclusion as a major collateral in a CMBS pool. In summary, the stabilized income approach supports a valuation in the low-$40 million range (consistent with the recent sale), yielding an income return around 6%, which is attractive given the credit-quality tenancy. Market positioning is strong, as evidenced by rent and sale comps, though future re-leasing will need to bridge the gap between the contract rent and broader market rents (a factor to monitor towards 2033). Overall, the feasibility analysis confirms that 615 Aviation Rd is performing at or above pro forma expectations and represents a sound, financeable industrial asset with solid yield characteristics and competitive market positioning, aligning well with lenders’ criteria for a stable long-term hold.

Market Positioning Analysis

Location & Submarket: The property is situated in the Berks Industrial submarket (Reading, PA), a secondary logistics hub within the broader Eastern PA region. Berks County benefits from connectivity to major transport corridors (I-78, I-476) and serves as a spillover distribution market for the Lehigh Valley and Harrisburg industrial clusters. With a total inventory of ~64.4 million SF, the submarket has a diverse mix of logistics warehouses, manufacturing (specialized industrial), and flex spaces. Modernization: Approximately 30% of the industrial stock has been built since 2010, concentrated in parks like Berks Park 183 (subject property’s location) and others. This newer construction wave (2018–2022) delivered millions of SF of high-quality space, including the subject, elevating the market’s profile for large distributors. However, development has recently slowed – only ~250,000 SF delivered in the past 12 months – indicating a pause that could help demand catch up to supply.

Demand & Vacancy: Robust demand characterized recent years (rent growth exceeded 18% cumulatively in 3 years), though 2024 saw a pullback in net absorption. As of Q2 2025, vacancy stands at ~7.6% overall in Berks County’s industrial market. Notably, the vacancy for modern logistics facilities (4-5 Star) is slightly higher (~9.2%, as some newly delivered big-box spaces remain in search of tenants (e.g., the 518,248 SF Hamburg Logistics Center was empty at sale). The subject property, by contrast, is 100% occupied (FedEx), insulating it from this near-term competitive vacancy. The availability rate (which includes sublease space) is about 10.7%, suggesting some slack in the market, but again mainly in older or less ideally located stock – institutional-grade parks like Berks Park 183 enjoy strong occupancy due to superior design and freeway access. Over 20 new leases were signed in the past year (mostly in smaller spaces <50k SF), with only a few big-box deals, indicating that large tenant activity has been limited but not absent. One example: a 817,155 SF lease by Romark Logistics in 2021 (at an undisclosed rate) absorbed a huge block of new space, showing that demand exists for large facilities when the right tenant is found.

Rental Rates: Market rents in Berks are moderate relative to primary distribution hubs, but have been climbing. As of mid-2025, the average asking rent across all industrial properties is about $7.36/SF, with the logistics segment (warehouse/distribution) averaging around $7.10/SF. These figures reflect a mix of older buildings and new space; importantly, new construction “trophy” properties can command higher rates. The subject’s lease at $10.51/SF NNN is a case in point – it significantly exceeds the market average (by ~40–50%). This premium is attributable to the building’s Class A features (high clear height, ample docks, modern sprinklers, large truck courts) and the build-to-suit nature for FedEx’s specific operational needs. It’s also a function of lease timing; secured in early 2023 when supply-demand dynamics allowed landlords of high-end product to push rents. For context, another Class A availability in the submarket (“Berks Park 1”) was asking $8.25/SF NNN for ~195,000 SF – well above the market mean, yet still below the FedEx deal, underscoring the exceptional rent level achieved at 615 Aviation. From a lender’s viewpoint, the above-market rent is double-edged: it boosts cash flow and value now, but raises the question of reversion to market if the tenant were to roll. However, the long lease term (through 2033) means the current rent gap may be mitigated over time as market rents gradually increase (Berks rent growth averaged ~7% annually over the past 5 years, though it has recently cooled). By lease expiry, market rents could approach the contract rate, reducing mark-to-market exposure.

Sales & Investor Sentiment: Investment activity in the Berks industrial market has cooled from peak levels due to broader capital market conditions, but notable transactions still occur, especially for quality assets. In the past 12 months, $169 M of industrial properties traded locally – lower than the five-year average, reflecting higher interest rates and selectivity by buyers. Most transactions have been small (<$3M), often owner-users or older facilities. However, institutional investors remain active for prime deals: about 40% of transaction value came from institutional buyersfile-rccuofu9gso1pmhq9bwtxb. The subject property’s sale in Jan 2024 to a DST-backed investor (as part of a portfolio) exemplifies this continued appetite for stabilized logistics assets. The sale metrics for 615 Aviation Rd are well above local norms, signaling a flight to quality. While the average sale price in Berks is ~$80/Sb, the subject fetched $171.83/SF, and while the average cap rate is recorded at ~17% (skewed by many small vacant sales), true Class A, leased product trades in the 6–8% cap range. In fact, CoStar’s models put the market cap rate around the high-7% range for 2025. The subject’s 6.12% cap is substantially lower (i.e. pricier), reflecting investor willingness to pay a premium for a long-term FedEx lease in a new facility. Another illustrative comp was the Hamburg Logistics Center sale at $57.5M in late 2024 – at $111/SF for a vacant new 518k SF box, it shows what developers or opportunistic buyers will pay for empty state-of-the-art warehouse (essentially a bet on future leasing). By contrast, the FedEx-occupied property commanded 55% higher price/SF due to immediate cash flow certainty. This gulf highlights how credit tenancy adds value in the eyes of investors and lenders. In summary, the subject is positioned at the top of the marketin Berks on all key metrics – rent, value, and yield – a testament to its competitive edge in location and quality.

Income Approach & Financial Projections

Stabilized Cash Flow: Given the single-tenant NNN lease, the property’s income is straightforward to model. Effective Gross Income is essentially the contracted rent from FedEx. At $10.51/SF on 251,028 SF, annual base rent is ~$2.64 million (with FedEx responsible for property taxes, insurance, and common area maintenance per the NN structure). The CMBS report for the nine months ending Sept 2024 showed base rent income of $1.865, aligning with this annual figure when extrapolated. No vacancy or credit loss is currently applicable (100% occupied), although lenders often underwrite a nominal vacancy reserve (for example, 5% was considered in the underwriting, which would equate to ~$132k/year). In actuality, FedEx’s long-term commitment and strong credit make vacancy loss a negligible concern in the near term – the tenant is in place through 2033, and there was likely no free rent period given the cash flow stability shown. Thus, we project Effective Gross Income ≈ $2.64–2.70 M annually over the hold period, subject to any lease escalations (not disclosed, but if standard ~2% annual bumps, NOI would modestly rise over time).

Operating Expenses: The lease being NNN means the tenant directly covers or reimburses for almost all operating costs. The financial statement indicates $0 operating expenses for the owner during the reported period. The landlord’s outlays are limited to structural reserves or any non-reimbursable capital. Indeed, the CMBS financials included a small capital expenditure reserve of ~$24k annually (about $0.10/SF). We will incorporate a similar reserve in our stabilized projection to be conservative. Net Operating Income therefore closely mirrors the rent. Using the underwritten figures: Stabilized NOI is about $2.77 M/year, and after capital reserves, Net Cash Flow (NCF) is ~$2.74 M. Our projection for the next few years assumes NOI remains in the $2.7–2.8 M range, with potential slight growth if rent escalations occur or at renewal.

Valuation via Income Capitalization: To assess the property’s value from an income approach, we apply market-derived cap rates to the stabilized NOI. The actual going-in cap rate from the Jan 2024 sale was 6.12%, which we consider a reliable indicator given it was an arm’s-length, marketed transactionfile-rccuofu9gso1pmhq9bwtxb. Capitalizing the projected NOI (~$2.74M) at ~6.1% yields a value of ≈$45 M (slightly above the sale price, suggesting the buyer’s going-in yield might have been just over 6.0%). For corroboration, if we use a more conservative market cap rate of, say, 7.5% (reflecting average investor yield requirements in secondary markets like Berks), the indicated value would be around $36.5 M. This lower valuation underscores how sharply the subject was priced; investors accepted a much lower cap rate (higher price) because of the property’s strengths. Given the property’s superior attributes and credit tenancy, a cap rate in the low-6% range is justified relative to the submarket. We also note that CoStar’s forward-looking data shows Berks Industrial cap rates stabilizing around ~7.6% for the overall market. The subject’s cap rate being ~150 bps tighter reflects a combination of lower risk (FedEx credit) and long-term income security.

Sales Comparison Check: The implied unit price of $171.83/SF for 615 Aviation Rd can be benchmarked against recent sales to further gauge valuation. In addition to the earlier noted comps (Hamburg at $111/SF, Palmer at $123/SF), the overall average ~$80–90/SF for Berks dealsshows that 615 Aviation traded at a substantial premium. Even within the subset of Class A industrial in greater Eastern PA, mid-$170s per SF is on the higher end, more akin to pricing in prime Lehigh Valley locations. This suggests the buyer (and lender) underwrote not just the current rent stream, but also FedEx’s strategic commitment to the site, perhaps betting on long-term occupancy or above-market renewal. From a lender’s perspective, the valuation looks well-supported by the income (6.1% cap is within a reasonable range for credit-tenanted logistics) and by replacement cost considerations – the price is roughly 1.5× the estimated construction cost, which is typical when a development is stabilized with a strong tenant.

Yield on Cost & Developer Profitability: A notable aspect of this case is the yield-on-cost relative to market yields. If we infer that the development cost for this facility was similar to the Hamburg center (~$110/SF), then the developer’s yield (NOI ÷ cost) would be on the order of 9%–10%. Even if actual all-in cost was higher (say $130–$140/SF due to tenant-specific improvements or land basis), the yield on cost would still be in the 7.5%–8%+ range. This significantly exceeds prevailing cap rates (which are high-7% for generic product, lower for build-to-suit credit deals). Such a spread indicates the developer created substantial value by leasing the building to FedEx and then selling into the investment market. For lenders, this dynamic is positive: it means the property’s income easily covers its cost basis, and the buyer has effectively paid a premium for that stabilized income. In other words, there is embedded equity in the deal from the development phase, which acts as a buffer. Moreover, the fact that the property was appraised around $44 M in late 2023 (per loan origination) suggests that both appraisers and lenders acknowledged this high valuation per SF as justified by the income approach.

Debt Service and Cash Flow Stability: The financing in place (as reported via CMBS) is a $23 M first mortgage (53% LTV) at a 6.14% interest rate, interest-only. Annual debt service interest is roughly $1.41 M, which is comfortably covered by the projected NOI. We calculate a Debt Service Coverage Ratio (DSCR) on interest of roughly 1.9–2.0×, or about 1.65× on a net cash flow basis when accounting for reserves. This strong DSCR is a critical feasibility indicator from the lender’s perspective: even under stress scenarios (e.g., a temporary vacancy or a drop in rent at renewal), there is a significant cushion before debt coverage would be at risk. Additionally, the interest-only structure through 2029 means the borrower isn’t constrained by amortization, enabling them to maximize cash-on-cash returns during the hold. The loan’s maturity in 2029 is four years prior to the lease expiration, an important detail: it ensures that refinance or payoff will occur while FedEx is still on lease, preserving the property’s high valuation at the exit of this loan. A refinance in 2029 should be feasible assuming similar lending climate, as the asset would still boast a few years of remaining term with an A-credit tenant – a highly bankable profile.

In summary, the income approach valuation supports the conclusion that 615 Aviation Rd is a solid investment with stabilized financials that meet or exceed pro forma expectations. The property’s NOI yield (cap rate), while below the broader market average due to its quality, is aligned with the risk profile and rental growth prospects. From a conservative standpoint, even if one were to apply a higher cap rate to account for the rent being above market, the valuation would remain in a comfortable range relative to the debt. Sensitivity tests (not detailed here) would likely show that the lease would need to roll over at a much lower rent or the cap rate spike dramatically (well into the double-digits) to jeopardize the loan’s safety – scenarios that appear unlikely given the current trajectory of the market and the strength of FedEx as a tenant.

Conclusion

Feasibility & Lender Perspective: The feasibility study of 615 Aviation Rd indicates a high-performing industrial asset that is well-positioned in both the market context and financial metrics. Key findings supporting its feasibility include:

• Strong Cash Flow and Coverage: The property generates roughly $2.7 M in annual NOI, providing a comfortable DSCR ~1.8× on the current debt. This means the income could withstand significant stress (e.g., a 40-50% drop) before impairing debt service – a reassuring factor for lenders and investors alike.

• Premium Market Position: With above-market rent ($10.51 vs ~$7.30/SF) and premium sale metrics ($171.83/SF vs ~$80/SF market average), the subject property clearly occupies a top-tier position in the Berks submarket. Its cap rate (6.1%) is notably tighter than typical market deals (often 7–8%+), reflecting the lower risk profile. These comparisons demonstrate that investors are willing to pay top dollar for the property’s combination of new construction and credit tenancy – a bullish sign for its ongoing value.

• Long-Term Lease Security: The FedEx lease (until 2033) secures nearly a decade of stable income, which aligns well with typical loan horizons and provides a clear line of sight on cash flows. This mitigates re-leasing risk in the medium term. The tenant’s status as a global logistics operator suggests that the facility is mission-critical, improving the odds of lease renewal or extension. Even though current rent is above market, gradual market rent growth and the strategic nature of the location may reduce renewal gap risks by 2033.

• Asset Quality & Competitive Advantage: The subject is a Class A, 4-5 Star industrial facility in a market that, while secondary, has seen increasing institutional interest. Its immediate competitive set is limited – few buildings can offer similar scale and modern specs in the area. This market positioning means the property should continue to attract demand (from either the existing tenant or new ones) for large-format distribution space. Furthermore, the site’s inclusion in a diversified portfolio CMBS loan indicates that it passed rigorous underwriting standards and is considered a cornerstone asset among the collateral, underlining its credibility to lenders.

• Yield and Return Profile: For the owner, the asset yields a stable ~6% income return at purchase price, which in the current environment is a solid spread over financing costs (the interest rate is about equal to the cap rate, meaning neutral leverage). The developer’s yield-on-cost (~9%) versus the exit cap (~6%) exemplifies the value creation in the project, which is a hallmark of a feasible development/investment. From the lender’s angle, that value creation translates to equity cushion and sponsor profitability, both positive indicators of deal strength.

Risks & Mitigants: No feasibility study is complete without noting potential risks. For 615 Aviation Rd, the primary risk is the single-tenant reliance – if FedEx were to default or vacate after lease term, the property could face downtime and an adjustment to market rent levels. At present, the market rent is ~30-40% below the contract rentfile-rccuofu9gso1pmhq9bwtxb, which could imply a drop in NOI if a new tenant had to be signed at market rates post-2033. However, several factors mitigate this: the lease has many years remaining (time for market rents to catch up), FedEx has made a significant commitment (likely with substantial upfront fit-out, indicating stickiness), and the building’s high quality could attract other national tenants should it ever go dark. Another risk is interest rate/cap rate fluctuation – if cap rates were to rise significantly by exit, the value could decline. Yet, starting from a modest leverage point (~55% LTV), the asset could absorb some value decline without threatening the loan principal. Additionally, Berks County’s economic conditions (e.g., if local demand faltered or new supply surged) could impact performance, but current trends show a relatively balanced outlook with limited new construction and vacancy normalization.

Final Assessment: In conclusion, the industrial feasibility case study for 615 Aviation Rd is compelling. It represents a well-conceived project that has been executed and stabilized effectively – from construction to lease-up to eventual sale, each phase achieved favorable outcomes (on-time delivery, securing a credit tenant at high rent, and trading at a premium valuation). The property’s financials are strong, the market positioning is advantageous, and the investment fundamentals align with lender criteria for low-risk, income-producing assets. This case study highlights how a Class A logistics facility in a secondary market can nonetheless command top-tier pricing and performance by anchoring a global tenant. For lenders, the asset’s profile – long-term cash flow, low leverage, and high-quality collateral – makes it an attractive lending opportunity with limited downside and steady, bond-like income characteristics. Therefore, 615 Aviation Rd can be deemed a feasible and prudent investment, with a positive outlook for sustained income generation and value preservation over the loan term and beyond, assuming continued sound management and market stability.

June 12, 2025 by a collective of authors of MMCG Invest, LLC, an industrial feasibility study consultant

Sources: MMCG database, CMBS data