Overview
A two-property, single-tenant absolute-NNN industrial portfolio (995,781 SF total) acquired through a leveraged DST, diversified by geography and tenant. Property 1 is a 680,508 SF build-to-suit distribution hub at 380 Estill Baker Road, Hanson KY (54.8 acres, built 1998 / expanded 2009, up to 70-foot clear heights, 48 dock doors), serving as Carhartt's primary national SKU facility, into which Carhartt has invested over $70 million in robotics, racking, and conveyor automation plus $1 million-plus of annual capex since 2015; the lease has 11.8 years remaining, 2.50% annual escalations, and eight 5-year renewal options. Property 2 is a 315,273 SF warehouse/manufacturing/office facility at 1730 East Main Street, Duncan SC (30.3 acres, built 1980 / expanded 2011, 29-31-foot clear heights), leased to Eaton Corporation (NYSE: ETN) for its Electrical segment and occupied since 1984, in the institutional Greenville-Spartanburg market (Spartanburg West submarket, 2.6% vacancy, inland-port and I-85 access); the lease has 11.9 years remaining, 2.00% escalations, and five 5-year options. The portfolio carries an 11-plus-year WALT and was acquired for $86,400,000 (First Year property-level NOI of $5,447,009), capitalized with $50,200,000 equity and a $47,520,000 Old National Bank first mortgage (7-year term, SOFR+1.95% swapped to a fixed 5.495%, interest-only for 48 months then 30-year amortization, nonrecourse). Distributions are monthly, beginning at a 5.05% annualized cash-on-cash yield. Both tenants' credit is rated 'good' by Alliance Research; Eaton is an investment-grade public company and Carhartt is a privately held, century-old workwear manufacturer. Sponsored by Four Springs TEN31 Xchange (founded 2014); securities offered through Third Seven Capital, LLC and distributed by Four Springs Capital Markets.
Highlights
The portfolio's credit profile is a barbell of one transparent, investment-grade public credit and one strong but opaque private credit. Eaton Corporation (NYSE: ETN) is a globally diversified, century-old power-management company serving customers in over 170 countries, providing rated, publicly reported counterparty strength on the Duncan SC asset. Carhartt is a privately held, 135-year-old workwear manufacturer whose creditworthiness rests on a sponsor-commissioned Alliance Research review rated 'good' rather than a public agency rating, so the larger of the two assets by footprint carries materially less credit transparency, and both leases are with the operating tenants.
Both assets are demonstrably mission-critical to their tenants, which raises renewal probability and switching costs well above a generic warehouse. The Hanson KY facility is Carhartt's primary national SKU distribution hub, into which the tenant has sunk over $70 million of fixed automation (robotics, racking, conveyor) plus more than $1 million of annual capital since 2015, embedding the operation in the building. Eaton has occupied Duncan SC continuously since 1984 and funded a roughly $5 million, 127,000 SF expansion, reflecting four decades of operational entrenchment.
The lease economics are durable and long-dated: absolute-NNN structure with minimal landlord responsibility, an 11-plus-year weighted-average remaining term (11.8 and 11.9 years), contractual escalators, and unusually deep renewal optionality (eight 5-year options at Carhartt extending up to 40 years, five 5-year options at Eaton extending up to 25 years). The qualifier is that the 2.00% to 2.50% escalators sit at or below long-run inflation expectations, so real income growth is limited and the blended roughly 2.35% step-up modestly lags a higher-for-longer cost environment.
Submarket quality is asymmetric across the two assets. The Eaton property sits in the Greenville-Spartanburg industrial market's largest submarket (Spartanburg West), a top-tier institutional logistics corridor with a record-low 2.6% vacancy rate, 5.1% availability, inland-port access at Greer, and I-85 frontage, supporting strong re-leasing economics. The Carhartt property, while logistically well-connected (I-69, CSX rail interchange, Ohio River ports, central to Carhartt's Kentucky manufacturing cluster), is in a rural, tertiary Western Kentucky location where alternative-tenant demand is thin if the incumbent ever vacates.
The financing structure generates positive leverage and, atypically for the ledger, builds principal equity. The $47.52 million Old National Bank loan is swapped to a fixed 5.495% against the in-place yield at 48.63% loan-to-capitalization, and amortizes on a 30-year schedule beginning in year 5, so investors accrete modest equity through the back half of the hold rather than facing a full interest-only balloon. The offset is that the interest-rate swap introduces breakage and termination cost if the assets are sold or the loan is prepaid, and scheduled amortization lifts annual debt service from roughly $2.65 million to about $3.27 million in years 5 through 7, compressing coverage.
Analysis
Insights
FSX Industrial 34 is a moderately leveraged, core single-tenant industrial net-lease DST whose return is leverage-amplified contractual income: a fixed (swapped) 5.495% loan at 48.63% loan-to-capitalization against the in-place yield lifts cash-on-cash from 5.05% to 5.25% (roughly 5.11% average) over a 7-year hold, with a healthy 2.06x Year 1 coverage. It is closest in profile to the ledger's leveraged net-lease holdings (BREX Net Lease Industrial, ExchangeRight Portfolio 75) rather than the debt-free all-cash series, but is distinguished by being the only entry whose loan amortizes, accreting modest principal equity into the exit. The investment case rests on two mission-critical distribution assets with long WALT and a barbell of one investment-grade public credit (Eaton) and one strong-but-unrated private credit (Carhartt), set against a favorable industrial-demand backdrop and, for Eaton, a premier Spartanburg submarket. The dominant risk-adjusted considerations are the two-asset/two-tenant concentration skewed toward unrated Carhartt in a tertiary market, the older sub-modern Eaton box, two near-simultaneous lease expirations a few years beyond the exit, and a 7-year balloon whose amortization step-up compresses coverage and whose swap imposes breakage cost on early sale. Underwriting feasibility is high on in-place contractual income; the credible variance lies in the exit pricing, refinancing conditions at maturity, re-leasing of two specialized assets at rollover, and the form and timing of the optional Section 721 conversion, which investors may decline in favor of cash. The 15.32% load and below-inflation escalators are the principal economic drags on net return.
Advantages
The offering pairs two mission-critical, absolute-NNN industrial distribution assets with an 11-plus-year WALT, contractual escalators, and minimal landlord obligation, diversified across two states, two tenants, and two end-industries (apparel logistics and electrical-equipment distribution). Eaton supplies a rated, investment-grade public credit, and both tenants exhibit deep physical and operational commitment to their facilities through substantial tenant-funded capital investment and multi-decade occupancy. The Eaton asset occupies one of the strongest institutional industrial submarkets in the Southeast, and the broader sector benefits from secular e-commerce and supply-chain demand for distribution space. The capital structure uses moderate, fixed-rate (swapped) leverage at 48.63% loan-to-capitalization that produces positive leverage over the in-place yield, supports a healthy 2.06x Year 1 coverage, amortizes to build equity from year 5, and underpins monthly distributions rising from 5.05% to 5.25% over the hold, with reserves funded at closing.
Concerns
The portfolio is a two-asset, two-tenant pool, so any single vacancy is binary to cash flow, and Carhartt alone represents roughly 68% of square footage, concentrating exposure in the privately held, unrated tenant and its specialized, rural Hanson KY facility where re-leasing or repurposing demand is thin despite the asset's mission-criticality. The two leases expire within roughly one year of each other (approximately years 12 and 12), clustering rollover risk into a narrow window that a buyer at the projected year-7 exit will underwrite with only about five years of residual term remaining. The Eaton building is 1980-vintage with 29-31-foot clear heights, below modern bulk-distribution standards (36-foot-plus), limiting its functional competitiveness for alternative logistics users, and it mixes warehouse, manufacturing, and office space that is more tenant-specific. The financing carries a 7-year balloon and refinancing wall, swap breakage cost on early disposition, and an amortization step-up that raises debt service to roughly $3.27 million in years 5 through 7, causing distributable cash to dip (Year 5 distributable cash of about $2.57 million versus $2.94 million in Year 4) such that distributions are sustained partly through reserve management. Escalators of 2.00% to 2.50% may lag inflation, and the upfront load is high at 15.32% of equity (a 5.16% acquisition fee, 9.69% in offering and selling costs, and a 0.47% finance fee), before a disposition fee at exit, against modest reserves of $864,000.
