Itay Ron, Managing Director & Northeast Market Officer, Faropoint

Itay Ron, managing director and northeast market officer at private equity firm Faropoint, sat down with Invest: to discuss shifting leasing dynamics and interest rate pressures, and how shifting economic conditions and investor demand are shaping Faropoint’s acquisition and development pipeline. “The tailwinds for urban industrial real estate persist despite high interest rates, albeit in a more moderate fashion than the last few years. There is a growing demand and barely any supply coming online. Pricing may fluctuate in accordance with capital markets, but in most submarkets, fundamentals are holding, and in the medium term, upwards pressure on rents should persist,” Ron said.

Reflecting on the past year, what market or operational changes have most impacted Faropoint, and in what ways?

Faropoint buys small and medium-sized industrial buildings, such as warehouses for distribution, light manufacturing, or assembly, all over the country. I oversee our operations in the Northeast. Over a year ago, that segment of the leasing market was softer than it is now. Recently, we have seen an uptick in activity and leases being signed. Tenants were not looking to make big decisions a year ago because we were in the midst of a big presidential race, and they did not know how it was going to go. After the election, everyone was on the fence as to whether or not they should decide because they knew tariffs were coming. Business owners were reluctant to make big decisions and moves. Around May of 2025, we noticed a higher sense of clarity among occupiers and transparency moving forward. Tenants and business owners are starting to plot a course. Tenants who engaged a year ago are coming to the table and making decisions. 

From a company perspective, we launched another flagship fund, Faropoint Industrial Value Fund IV, targeting a billion dollars to be deployed in all our operating markets. The buy box is similar to our first three value-add funds, that being small to medium-sized warehouses. Our mandate is rather flexible because we invest across the value-added spectrum. These past couple of years, we added ground-up development as one of our core capabilities. We are now doing several ground-up projects in NJ and elsewhere in the country. 

How are shifting economic conditions and investor demand shaping your acquisition and development pipeline in New Jersey and neighboring regions?

We saw more softness in South Jersey and the Greater Philadelphia metro than in Northern New Jersey. From a leasing perspective, things look better than they did a year ago. In Northern New Jersey, our portfolio was almost completely occupied, and we did not have many vacancies. Philadelphia was a different story, but things are now looking better. 

On the capital market side, it was interesting to see that despite interest rate pressures and softer leasing dynamics, we saw some core plus buyers purchasing quality assets in Greater Philadelphia. Because the leasing environment was softer, we decided to lean into higher-quality assets and pick and choose where we would like to assume vacancy risk.

Given supply constraints and rapid e-commerce growth, how do you assess the sustainability of infill industrial logistics, especially in high-density markets?

There are two opposing forces here. Rents are going up and causing an appreciation of real estate. Interest rates have been going up in the past three years, which has caused a devaluation of real estate. One force is pushing values up, and the other is pushing values down. The question is, what pulls harder? When it comes to new development and class-A, because they operate and invest in an environment with much lower cap rates, they are much more sensitive to interest rate fluctuations. It is a slightly different story with class-B. Across our funds, we were able to maintain or increase the appraised value of most assets because even though cap rates decompressed due to rising interest rates, we also saw market rent growth. This resulted in a balancing out or an increase in most cases. Class-B typically trades at a higher cap rate than class-A, and we were fortunate that the environment is less sensitive to interest rate changes, compared to class-A.

Moving forward, we will be operating fairly conservatively, even though we are not seeing a widespread development pipeline addressing small bay demand. Our average building size is roughly 60,000 square feet, and there is barely any new development in that space. There are a few larger buildings on the market or in the pipeline to be delivered, but it is yet to be determined if they would demise down the building to small enough spaces to compete with true small-bay industrial. 

What is your value proposition to tenants, and how does it enable you to quickly provide extra space when their operational demand shifts? 

We stay close to tenants to understand their operational needs. When they need extra inventory space, our extensive national portfolio lets us quickly expand or contract their footprint. That scale and flexibility help us to deliver a consistent, quality, and familiar service that smaller investors can’t match. 

Looking more broadly, where do you see the most opportunity on a regional scale for industrial real estate?

From a Faropoint perspective, because we buy small to medium-sized buildings, we are seeing a lot of opportunities in Long Island. That area is a cul-de-sac market, and most buildings are smaller and meant to serve Long Island, rather than regional or national big-bulk distribution. Generally speaking, we have been leaning toward slightly higher quality across different markets. 

What barriers have you encountered in adaptive reuse projects, such as converting office buildings into industrial or warehouse space? 

A few office buildings in the market are being knocked down in favor of industrial. We haven’t done any of that yet, despite evaluating a few opportunities, and there are two main barriers to entry. The cost basis for office buildings right now is still rather high compared to industrial land basis. In most cases, it wouldn’t make sense to buy an office building, knock it down, and turn it into a warehouse building because the price for the office building is still too high. Additionally, in New Jersey, many municipalities push back against new industrial developments. If a building is not properly zoned, you would have to attempt to rezone it. That can either be refused or it can take a long time. 

What are some of the main challenges Faropoint is facing in today’s market, particularly in New Jersey?

We have seen several tenants in the past few months who needed more energy and power. When it comes to data centers, we do not operate in that segment. We buy a lot of class-B, and many of these buildings were built in the 1970s and ‘80s. Many were designed for manufacturing and have more power. Power requirements are coming back, and we are seeing a surge in demand for those older facilities. Despite being older, they have the kind of electrical service some tenants are looking for. 

How is Faropoint navigating the workforce shortage, and what partnerships have helped you find the best talent?

We are a private equity firm and generally have good employee retention. Attracting top talent and juniors out of college requires businesses to allow them to develop professionally and technologically. You need to give them the tools, such as advanced operations and analytics systems. We also do our best to support employee initiatives and are leaning into AI models and their various applications. We do that on a wide spectrum, starting from day-to-day efficiency-enhancing AI tools for employees to use, all the way to rent and market rent growth prediction models that draw from hundreds of thousands of lease comps nationally.

What is your near-term outlook for the commercial real estate industry in New Jersey, and how does that align with Faropoint’s top priorities?

The tailwinds for urban industrial real estate persist despite high interest rates, albeit in a more moderate fashion than the last few years. There is a growing demand and barely any supply coming online. Pricing may fluctuate in accordance with capital markets, but in most submarkets, fundamentals are holding, and in the medium term, upwards pressure on rents should persist. As a company, we aim to grow across the spectrum for urban industrial. We also provide industrial debt solutions and lending to other landlords who own small-bay facilities.