Jim Traynor looks around the spacious inside of one of his firm's new industrial buildings along the aptly named Horizon Way and takes in a far different vista than what preceded it.
The gleaming structure — part of a three-building complex in Irving, Texas — sits on what was once a sprawling parking lot serving a low-rise office building near the region's international airport. It's one of the first office-to-industrial conversions the Orlando-based Foundry Commercial has completed in the United States, and an example of a new kind of project taking hold in the Dallas-Fort Worth region and throughout the United States.
“It’s kind of like this new genre of real estate that overlaps office and industrial and land," said Traynor, the firm's partner and managing director of development and investments. "Foundry understands the nuance because we can manage a building with office tenants in place and later redevelop it into new industrial space.”
Foundry Commercial's Chief Investment Officer Pryse Elam said such projects are becoming feasible as obsolete offices go wanting for tenants and industrial clients clamor for space.
"This is something relatively new. It helps solve the office problem by reducing the office supply and converting it into something productive," Elam said.
Foundry is just getting started. It has teamed with a real estate fund advised by Crow Holdings Capital in the acquisition of a 1980s-vintage office building 4250 N. Belt Line Road in Irving, the firm exclusively told CoStar News. Foundry plans to demolish the existing building and construct a Class A industrial facility totaling 118,032 square feet with 32-foot clear heights.
Construction is scheduled to begin in September, with delivery expected by the end of summer 2026.
New property opportunities
The project is one of a series of properties — totaling 1.9 million square feet — that Foundry Commercial plans to demolish to replace with 2.9 million square feet of industrial space.
Foundry Commercial isn't the only real estate firm seeking to convert vacant or aging office space and create new real estate opportunities. CBRE, the world's largest commercial real estate services firm, said in June it expects U.S. office conversions and demolitions to exceed new construction of the property type for the first time since at least 2000.
Before Foundry Commercial began tearing down low-rise suburban office buildings, developers, such as Pacific Elm Properties and Todd Interests, were converting skyscrapers and big office towers in downtown Dallas into a mix of residential and offices. Last year, at Santander Tower, floors once leased to WeWork were converted into luxury apartments.
Foundry Commercial, which focuses on industrial projects, has shied away from projects that attempt to convert one type of building into another. Instead, the firm prefers to demolish office space to build anew.
Foundry adopted the strategy to meet the demand of clients seeking infill sites near existing distribution nodes — a difficult proposition in mature industrial markets, Elam said. The firm targets office areas with underlying zoning that permits industrial uses.
"There can be some real sensitivity to rezoning if there's residential adjacency," Elam said, citing its conversion project in Orlando, Florida, where the proximity to a nearby residential community led the firm to scale down its redevelopment plans to cater to companies with panel trucks for deliveries rather than large semi-trucks.
Foundry has five office-demolition-industrial conversion projects underway in several U.S. markets in Texas, Florida and North Carolina. Another six conversion projects are in the wings, some waiting for office tenants to vacate the property and others that are moving through the rezoning or permitting process.
For new projects, Elam claimed Foundry has "an unlimited supply of capital," for these projects as long as the economics make sense.
Big demand
In the last two years, Elam said there's been "enormous demand for small-bay industrial space," which includes buildings ranging from 50,000 square feet to 130,000 square feet of space with those tenants seeking to service a local trade area in some way.
Demand has been more acute since the pandemic disrupted supply chains, business models shifted and the United States began raising tariffs.
"With the disruptions in trade, we are following the demand," he added.
Other firms are also betting on the growing demand for small-bay industrial space, with recent portfolio acquisitions by Brookfield Asset Management and Ackerman & Co. with the help of a Belgium private equity firm
Traynor, who is overseeing conversion projects in the Dallas-Fort Worth region, said his team has begun to see the office market slowly come back — just not in the areas his team is targeting. Rather, he said, the office market is showing signs of recovery in more urban areas, such as Dallas' Uptown and Preston Center neighborhoods.
"The easier conversion projects are being picked up and then we'll get to the harder ones," the partner at Foundry said, adding that other projects may require city subsidies or incentives to make the numbers work. That has already happened with Foundry's project in Plano, Texas to demolish an office building to make way for two speculative industrial buildings, he said, with the city ponying up a $750,000 grant for the project.
So far, Foundry's thesis is playing out with its Horizon Way industrial hub in the Dallas-area, once home to a suburban office building catering to mortgage professionals. The new industrial building has already landed its first full-building lease totaling about 53,000 square feet of space. Traynor declined to disclose the tenant as his team shops the other two Horizon Way buildings to would-be tenants.