SoCal's Industrial Market is Perfect Right Now
SoCal's industrial market is priced right and core buyers are crowding into value-add, leaving our panel at Bisnow's SoCal Industrial Real Estate Summit last week optimistic, even if it's tough to find sites. Videos courtesy of Allen Matkins.
Hackman Capital senior managing director Theresa Jones told the crowd of 185 at JW Marriott at LA LIVE that pricing for value-add opportunistic deals has become unbelievable. The company sold 120 former Hostess buildings nationally (out of 140) over the past year, and buyers were totally bifurcated between users and redevelopers who are putting in residential or mixed-use. Hackman has its own plans to redevelop the 1.6M SF Campbell's soup facility it just bought in Sacramento. Video.
Cassidy Turley VP Brad Koehler's markets are in the central and east San Fernando Valley and along the I-5 corridor to Valencia. Rental rates in Burbank are at an all-time high at 90 cents to $1/SF. The vacancy is higher in Valencia, but it's predominantly in buildings below 50k SF. Video.
Lamenting the lack of new construction, Lee & Associates-LA North/Ventura president Mike Tingus says the SF Valley and Ventura County are such owner-user driven markets that it's difficult to find product. The good news is that lease rates are going up. Even Chatsworth has been on fire absorption-wise, and if you have an R&D building in the Conejo Valley, it'll quickly get snatched up. (Don't show your industrial building to your young children, lest they become too attached before it disappears.) Video.
According to KTR Capital Partners SVP Brian Gagne, LA has the best occupancy fundamentals in the country, and landlords like KTR are pushing rents. Class-A industrial rates are at or near peak, and B rents are within 10% to 15% of peak, making it the best B market recovery in the country. It's a good time to go in and stabilize value-add assets, then sell into an overheated core, stabilized marketplace. Video.
Noting that larger companies helped bring Orange County out of the recession, Voit managing director Ian Britton says this has trickled down to smaller, entrepreneurial companies in sectors like residential construction, high-tech manufacturing and assembly, regional distribution, and medical tech. With limited inventory, the value-add play will be the way to make money. Video.
According to CapRock Partners principal Jon Pharris, Inland Empire absorption levels over the past two years have been higher than in '06 and '07. For short-term buyers, compressed cap rates are great on the exit, but it's hard to find opportunities. Keeping things in perspective, however, even if cap rates go up 50 bps from 4.75 to 5.25, that's still better than the rest of the country. Video.
Age 50 is the new 40, orange is the new black, and Ontario, with its 2% vacancy, is the new City of Industry, according to Sares Regis commercial development division president Peter Rooney. Meanwhile, Perris and Moreno Valley are the new Ontario. In Orange County, rents should be taking off like a rocket, but it's harder to find tenants because the demand for new buildings is five-to-one to buy versus lease. This should change when interest rates climb. Video.
Allen Matkins partner Pam Andes, who heads up the firm's Industrial & Logistics Group, was our moderator. She encourages industrial pros with young kids to vacation now because later on you'll be working to pay for their tuition or they'll be too busy to vacation with you. Her children are at USC and Notre Dame.
Peter sees institutional investors delving into development and doing pre-sales, buying buildings off of a site plan. Mike notes that Newbury Park's largest employer, Amgen, has had some 2,500 layoffs; as those employees depart, they're creating new companies. According to Brian, if you're chasing a core stabilized deal, there are 40 bidders. If you go into the value-add arena, it's the same 10 or 12 guys. (That makes it easier to order "the usual" at lunchtime.)