OC Development's Got Momentum. Here's Why.

Development in Orange County is hotter than it's been in a decade, fueled by a demand for creative new space and overseas capital—though it's also bumping up against land constraints and higher construction costs. Those were some key takeaways at Bisnow's 3rd annual OC Construction & Development event.

Snapped: IA Interior Architects managing principal Brian Koshley, who moderated, Swinerton Builders VP Dave Callis and Bixby Land SVP Aaron Hill. It's clear that creativity is being rewarded in the current market, our speakers said, whether that's in design—creative office is clearly hot, however one defines it—or how a deal is structured. The best marketing of a project is the quality of design put into it. "To produce anything less would be to work against ourselves," as one panelist put it.

Here are Voit Real Estate Services managing director Ian Britton, who moderated, and Parker Properties CEO Russ Parker. Our speakers also noted the differences in the tenant/buyer mix from a demand standpoint this cycle vs. last. For example, most of the industrial development projects in OC infill markets during the 2004 to 2007 period were smaller buildings driven primarily by SBA financing. During the recovery and expansion cycle this time around, by contrast, demand has been most prominent in larger buildings of 40k SF and above. 

Here's Panattoni Development CEO Adon Panattoni, Guthrie Development CEO Robert Guthrie and CapRock Partners COO Patrick Daniels. Given some of the barriers to entry, like ever-increasing land costs, higher fees and a sharp increase in construction costs, developers are having to pay close attention to their basis to generate their desired return, the speakers cautioned. It also seems like the debt market is still conservative, and many new projects require substantially higher equity contributions for the investor/developer to get started than during the last cycle.

Another trend that the speakers explored was investment capital coming from overseas and from other sources, so much so that these investors are now competing with users for vacant buildings, both large and small. China is having a huge impact. "Most of the industrial buildings we sell today are sold to Chinese business owners and investors," noted one panelist. While the trend is accelerating, a slowing Chinese economy may have a negative impact in the future.