3286 Airway Drive — Industrial Conversion & National Tenant Lease
A warehouse shell marketed as retail sat unsold for months in one of Sonoma County's most active industrial corridors. The property was zoned Light Industrial and surrounded by logistics and service users, but it was priced and marketed to a retail tenant pool that barely existed there. We underwrote it as an industrial investment instead, acquired it below market for an investor client, and repositioned it — ultimately securing a 10-year NNN lease with Tesla.
The Challenge
3286 Airway Drive had been sitting on the market for several months despite occupying one of the most active industrial corridors in Sonoma County. The Santa Rosa industrial market was at peak demand at the time, with declining interest rates and strong investor activity — and still the property drew no meaningful interest.
The problem was positioning, not the asset. The building had historically served as a retail showroom for a furniture company, and it was being marketed with a retail-oriented rental structure and valuation. But it sat in a Light Industrial zoning district surrounded by warehouse, logistics and industrial service users, where retail tenants were extremely limited. The offering was aimed at a tenant pool that effectively did not exist on that street.
The improvements themselves told a different story: a warehouse shell structure with heavy electrical power, a full fire sprinkler system, and a large lot whose excess parking could be converted into industrial yard. Strong industrial fundamentals — overlooked, because the property was never presented to the buyers who would value them.
The Action
Recognizing the disconnect between how the property was being marketed and what it actually was, we approached it from an industrial redevelopment and investment perspective — underwriting the building as a traditional industrial investment repositioned for warehouse and light industrial users rather than as a retail asset.
Four existing conditions supported the repositioning:
- Existing warehouse shell construction
- Heavy electrical infrastructure suitable for manufacturing or service users
- A full fire sprinkler system already installed
- A large parcel allowing excess parking to convert into functional industrial yard
Using industrial lease comparables in Santa Rosa, we projected stabilized income at industrial rental rates rather than retail rents, applied a 6% capitalization rate to establish investment value under an industrial use scenario, and submitted an acquisition offer on behalf of an investor client.
Because the property had been vacant and underperforming with limited buyer interest, we secured it at a below-market purchase price with favorable closing terms. Timing proved critical: while the property was in escrow, the seller began receiving backup offers at significantly higher valuations as other investors started recognizing the same industrial conversion opportunity.
The Result
Following acquisition we immediately repositioned the property for industrial tenant demand in the Santa Rosa warehouse market, targeting industrial service operators, logistics companies and advanced manufacturing users seeking functional space in Sonoma County.
The response was quick, and multiple lease proposals followed — many from tenants seeking to take only portions of the building. While ownership evaluated those smaller scenarios, we procured a lease proposal from Tesla, a globally recognized national tenant seeking operational space in the North Bay.
National corporate tenants need extended timelines for permitting, corporate approvals and build-out planning, which initially created a timing consideration for ownership. After weighing holding costs, tenant improvement scenarios and long-term value implications, we advised ownership that accommodating that timeline would produce significantly greater long-term value than assembling several smaller leases. Ownership proceeded with the national tenant.
The outcome was a 10-year triple-net lease with Tesla, converting the property into a stabilized industrial investment asset:
- A national credit tenant secured on a long-term lease
- A 10-year NNN lease structure executed
- The property stabilized with predictable long-term cash flow
- Asset value increased by approximately $2,000,000 upon lease execution
The transaction illustrates how repositioning an underutilized property — and aligning it with the demand that actually exists in its submarket — can unlock substantial value for investors in the Santa Rosa industrial market.
The property
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