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Border Issues? Developer Moves Forward With 311 Acre Industrial Development Near Mexico

Even as negotiations are underway about the future of U.S.-Mexico trade, Kearny Real Estate Co. and investment firm PCCP broke ground recently on the first phase of Otay Crossings Commerce Park, which will include warehouse and distribution facilities near the U.S.-Mexico border. At 311 acres, the project is one of the larger recent industrial developments in San Diego County.

Work gets underway at Otay Crossings Commerce Park.

Otay Crossings comes at a time of considerable uncertainty for the future of the North American Free Trade Agreement. The Trump administration, which has long expressed animosity for the agreement, is pushing for a preliminary NAFTA revision deal to announce at a summit in Peru next week, Bloomberg reports.

The president has already famously slapped tariffs on steel and aluminum last month, but gave exemptions to Mexico and Canada — the country's two NAFTA partners. That might or might not bode well for the future of the trade agreement, since the exemptions for Canada and Mexico are not open-ended, according to CNBC.

Their continuation will depend on whether changes are made to NAFTA that satisfy Trump, according to an administration official speaking to CNBC on the condition of anonymity. 

At times, the president's language about NAFTA is strong, though it is not clear whether that will translate into the destruction of the agreement, or even any major changes. 

Kearny Senior Vice President Jeff Givens said the company is watching the discussions closely.

"NAFTA is a big driver for commercial space in Otay," he said. "Ultimately, there may be changes to the agreement, but we expect there will still be a strong cross-border economy going forward."

Otay Crossings will succeed, Givens said, because the lack of industrial buildings and land countywide is a demand-driver.

"Industrial land in any size is getting harder to come by in Southern California. Currently in San Diego County, industrial vacancy is below 5% and the only available land for development consists of one-off lots.

"Otay Crossings' size, location and freeway accessibility provides a location for industrial users who need easy access to the border and its cross-border economy, as well as users who may reside in South County and need options for office/warehouses."

The development site is near a planned extension of California Route 11, which will connect to California 905 and California 125. It is also close to a planned new border crossing called Otay Mesa East (or Otay II) that is expected to speed up truck delivery times. Otay Mesa East is scheduled to begin construction in 2020.

Kearny Real Estate Co. Senior Vice President Jeff Givens

As many as 88,000 trucks a month in 2017 passed through the Otay Mesa border crossing, according to U.S. Department of Transportation data, carrying a wide variety of goods. That movement of goods represents only a small fraction of the massive trade between the U.S. and Mexico, the size of which has inspired intense pressure on the part of corporate America to keep the essence of NAFTA in place.

An open letter to the president and Congress sent late last year by 310 organizations, including the San Diego Chamber of Commerce, pointed out the importance of trade under the NAFTA scheme.

"North American neighbors are also booming markets for U.S. services exports," the letter said. "In fact, the U.S. last year recorded a trade surplus of $11.9 billion with its NAFTA partners when manufactured goods and services are combined. Among the biggest beneficiaries of this commerce are America’s small and medium-sized businesses, 125,000 of which sell their goods and services to Mexico and Canada."

The livelihoods of import-export companies would certainly be affected by any significant changes to NAFTA, but they would not be the only ones affected. 

Many products move across the border several times during their manufacture, which means jobs on both sides of the border. If they were not in Mexico, these manufacturing jobs would likely be in India or China, San Diego World Trade Center Executive Director Nikia Clarke said.

Even if there is some contraction of cross-border traffic because of trade policy changes, Givens said that space at Otay Crossings will find takers.

"Although Otay Mesa commercial real estate is dominated by a large majority of cross-border businesses, Otay Crossings mixed-industrial zoning will provide flexibility for a wide array of businesses," Givens said.

"We expect trucking-distribution operations, which are common in Otay, but also a mix of owner-users who are looking for alternatives to locate their office/warehouse operations," Givens said. "There are very few options left in San Diego County for users looking for buildings and/or land appropriately zoned for industrial uses."

Completion of the first phase of Otay Crossings, which will be on about 111 acres, is slated for the summer of 2019. Infrastructure work is currently underway.