Industrial Development Just Can't Come Fast Enough. Here's Why.
With one of the tightest industrial markets in the country, LA and SoCal continue to see an active development pipeline. That's why we're thrilled to host Bisnow's 5th annual Industrial Real Estate Event, Aug. 25 at the Montage Beverly Hills, starting at 8am.
Among our all-star panelists will be Prologis Southwest Region president Kim Snyder (snapped at our industrial event last year). As you know by now, the company acquired KTR Capital Partners in a $5.9B deal, adding 60M SF of industrial real estate across the US–14M SF in Kim's region alone. He expects the deal to be accretive to Prologis' income stream and overall effectiveness. The KTR properties were comparable to the company's existing portfolio in quality, type and tenants, many of whom are customers in Prologis buildings as well (though the company did pick up a few new tenants). Prologis also took over two buildings that KTR had under construction in Redlands, and in both cases, Prologis has projects of its own close by. "Advantage of scale really came into play for us in that we had no problem digesting what would otherwise have been a pretty large meal," Kim tells us.
The logistics developer has been extremely active in the Inland Empire, Phoenix and Las Vegas, but one deal that went off the beaten path a bit was the acquisition and sale/leaseback of five office buildings in Dominguez Technology Center (above is its Rancho Cucamonga Distribution Center). The tenant is a government defense contractor, and while the buildings may not be industrial, they're within a well-located industrial park. With the tenant's projects winding down, Kim says Prologis is master planning the property's next stage of life. Noting it takes long-term, patient capital, he says land banking is part of Prologis' toolkit to get things accomplished, especially in infill areas. Besides office buildings, the company has bought a steel mill in Torrance and a furniture site in Carson, among other properties, just to get the land.
Another panelist will be Dedeaux Properties principal Brett Dedeaux (with his wife in Sonoma wine country). The company has more than a half-million SF in various stages of the development pipeline, including a 40k SF produce facility about to start construction in Commerce, and a 130k SF distribution facility that's ready to break ground in Ontario; a 125k SF distribution facility will break ground in City of Industry by year-end. Brett tells us Dedeaux also completed and sold a 140k SF state-of-the-art distribution facility at 3305 Bandini Blvd in Vernon to Nature's Produce. In addition, the firm will wrap up a 120k SF distribution facility in Rancho Cucamonga in Q4.
The state-of-the-art project, located at 9060 Rochester Ave in Rancho Cucamonga (above), is in escrow to a regional pet food distributor. A leader in the development of refrigerated facilities, Dedeaux is renovating the LA Food Center—installing new energy-efficient cooler and freezer equipment to a property that was built in two phases—and negotiating with national food companies. Brett notes a lot of companies are entering the organic and natural foods business in LA. Along with new food safety regs, this is driving the need for new or updated buildings. While the company builds a lot of standard industrial as well, another of its niches is truck terminals—it recently leased a six-acre facility in South Gate to Penske, and has received approvals on a nine-acre transportation facility in Fontana.
Our panelists also will include Guthrie Development CEO (and avid mountain biker) Rob Guthrie. The company has been focused on buying existing industrial parks, then filing a condo map to convert the projects to units for sale. Rob tells us his buyers generally are small business owners who finance their purchases through SBA loans, reaping the tax benefits and other advantages of owning vs. renting. According to Rob, this product does well in coastal communities like Orange County, where Guthrie Development is HQ'd and has developed over 600 industrial condo units totaling more than 2M SF, as well as San Diego. The company likes to develop near high-income, executive housing, he says. "For a while, this had kept us out of the Inland Empire." Today, the IE has matured to the point where he's seeing demand for projects like Guthrie's Airport Distribution Center in Ontario.
The project (above) consists of three 10-unit buildings totaling 220k SF. Rob also points to another dramatic change: People of Chinese origin, including recent immigrants who own import-export companies, make up a growing percentage of buyers as the Chinese business community expands from the San Gabriel Valley out to the IE. The company purchased the Ontario project from Panattoni Development (whose Adon Panattoni will be on our panel), and has recently purchased another business park in Brea from LBA Realty. Historically a ground-up developer, Rob says the industrial condo market hasn't recovered to the point where new construction vs. conversion makes sense. Until the prices grow above replacement cost, he says, "We're out there trying to buy as much of this as we can, in a relatively short period of time." Come hear more at Bisnow's 5th annual Industrial Real Estate Event, Aug. 25 at the Montage Beverly Hills, starting at 8am. Sign up here.