Building a $400M Small Bay Industrial Portfolio With Frank Forte
Frank Forte did not take the conventional path into commercial real estate. He came out of school during the financial crisis, pivoted from Wall Street ambitions into distressed debt consulting at the U.S. Treasury, moved into a senior housing debt and equity fund, and eventually worked on the largest commercial real estate default in U.S. history the $5.4 billion Peter Cooper Village-Stuyvesant Town deal, at Fortress and CW Capital. After a stint placing $2 billion a year in debt and equity at Berkadia, he went out on his own at 27. A decade later, his firm Lucerne Capital has done $400 million in transaction volume, raised approximately $100 million in equity, and generated north of 30% IRR across its industrial portfolio.
In episode 94 of The Real Finds Podcast, Forte sits down with Gordon Lamphere to break down the full arc: why he exited multifamily at precisely the right moment, how he built a repeatable value-add machine in small and multi-tenant industrial, and what the density-or-growth thesis actually means when you are deploying capital across Charlotte, New Jersey, the DC metro, and now Chicago.
From Multifamily to Industrial
Forte’s investing years began in multifamily up and down the East Coast. He and his partners identified the Carolina opportunity early, buying per-door at a fraction of Northeast pricing and riding the run well. But three to four years ago, he started recognizing the telltale signs of what had happened in Houston years earlier: indiscriminate construction, compressed yields, and rising vacancy driven by a flood of new supply. Lucerne divested most of its apartment exposure before the correction hit.
The pivot into industrial started with a 50,000-square-foot multi-tenant building in Charlotte, purchased at $117 a foot with 40 tenants. Over three years, the team moved net rents from $6 a foot to $20 a foot. That deal became the template for everything that followed and a proof of concept that set the direction for the platform.
The Value-Add Playbook
Lucerne does not buy stabilized assets. The firm sources infill product often off-market, sometimes after years of tracking a specific owner who executes capex, repositions rents, and sells to core-plus buyers who want the finished product without the construction and leasing risk. Two of the three deals the firm closed this quarter had been in pursuit for over a year. One had been tracked for two full years.
Everything is managed in-house: asset management, property management, and construction management. Forte estimates he has personally GC’d roughly $25 million in projects over the course of building the platform. On the acquisition side, Lucerne typically targets assets under $15 million, buying at meaningful discounts to replacement cost and underwriting to a base case of 14 to 16 percent compounded net to the investor. Most outcomes have come in considerably above that floor.
The current pipeline illustrates the model in practice. One deal closed at $141 a foot, repositioned, and is being sold at $225 a foot, roughly 70% appreciation in two and a half years. A deal closing imminently was purchased at $107 a foot, with $10 a foot of planned capex covering roofs, HVAC, parking lots, and suite work. Exit target is in the $150 to $165 a foot range. The discipline, Forte notes, is knowing when the juice is worth the squeeze and never paying for work that has not been done yet.
Density or Growth A Framework for Market Selection
One of the more useful frameworks Forte has developed is what he calls the density-or-growth thesis. To make small and multi-tenant industrial work, you need either a high-density, mature market with durable tenant demand or a high-growth market with population and job inflows. You rarely get both. Charlotte gives you growth. Chicago, New Jersey, and the DC metro give you density. Both work; they just have different risk and return profiles.
Dense markets produce higher rents, more durable tenants, and structural supply constraints because land is limited and entitlements are difficult. Forte’s multi-tenant assets in the DC metro are achieving rents of $16 a foot net with five-dollar CAMs, and occupiers HVAC contractors, auto specialists, and service-based businesses of all kinds are not blinking. Nine-point-nine million people live between Baltimore and Washington. The occasional federal workforce disruption, Forte notes, is a rounding error against that kind of structural density.
Chicago fits the same mold. The Chicagoland market’s infrastructure, labor depth, and population base make it a natural fit for the density side of the thesis and the dynamics playing out locally reinforce Forte’s logic. As the VVCO blog has documented, small-bay industrial in Chicagoland is running below 3% vacancy while large-box space softens above 7%, a bifurcation that reflects exactly the structural durability Forte is betting on. Forte avoids tertiary markets entirely, regardless of how compelling a deal looks on paper.
The Tenant Profile and Why It Matters
Small bay and multi-tenant industrial attracts a specific kind of occupier: service-based businesses that are geographically anchored, operationally mature, and highly resistant to economic disruption. Lucerne’s portfolio includes HVAC contractors, plumbers, painters, auto body shops, high-end automotive specialists, e-commerce operators, and in some cases national tenants using the space for specialized functions. One tenant does $180,000 a month in revenue out of 4,400 square feet. Another is a Shaw Floors plan-o-gram facility one of the only locations in the world Shaw does not own outright.
The key insight, as Forte frames it, is that these businesses need their space the way a person needs their home. It is where they work, where they build their client base, and where their livelihood lives. Collections performance on small bay industrial dramatically outpaces multifamily Forte describes going from rolling 20 to 30 evictions a month on an apartment portfolio to one eviction every three years on a comparable industrial book. That structural stickiness is part of why the product commands a premium per square foot relative to large-bay alternatives. The economics behind why small industrial spaces consistently price higher per foot than large ones reflect exactly the dynamics Forte describes: multiple utility setups, higher management intensity, and a tenant base with much wider demand than single-tenant big-box alternatives.
AI, Automation, and the Lean Operations Model
Forte has moved aggressively to integrate workflow automation into operations. Last summer, Lucerne built a system using Make.com, Gemini, and their property management software that automatically synthesizes weekly financial reports for every asset in the portfolio, flags issues against preset criteria, and distributes a summary to the full team. The cost to build it was $250. Weekly property management meetings that once ran 90 minutes now wrap in under an hour.
Lease abstracts that previously cost $10,000 to $15,000 in legal fees now run through an agentic AI tool in 20 minutes, with a team member spot-checking the output. Forte is candid about what this means for entry-level hiring: the grunt work that used to be the trade-off for deal exposure no longer requires a junior analyst. His advice to young professionals entering the industry is to come in as the person who can build the workflows that is the new leverage point and the new trade-off.
What the Industry Is Getting Wrong
When asked what the industry is not discussing enough, Forte does not hesitate: the operational reality of real estate investing. Too many new entrants, especially those drawn in by the hot coverage around small bay over the past two years, treat the asset class as passive income. It is not. The returns come from doing the work other people cannot or will not do sourcing off-market, pricing capex correctly, understanding what de-officing costs, knowing what sprinkler head compliance actually means at 30 bucks a foot.
For investors considering a disciplined entry into this space, the phased, proof-of-demand approach matters more than ever. Starting with smaller, manageable infill product before scaling rather than overcommitting capital upfront is the discipline that separates operators who compound returns from those who reset the basis for everyone else in the market. Forte has seen enough cycles to know that the tide always goes out. When it does, operators with scars on their face and systems that actually work tend to be the ones still standing.
Frank Forte is the founder and principal of Lucerne Capital. You can reach him at [email protected] or at lucernecapital.com.