Western Real Estate Business

JUN 2018

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

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www.REBusinessOnline.com Western Real Estate Business • June 2018 • 45 multiple transactions earlier this year. One of the assets was a vacant 91,183-square-foot industrial building in the Scripps Ranch submarket that had become surplus real estate for the corporate seller. "While this prop- erty had 'good bones,' it was con- structed in 1982 and the building exterior and landscaping re- flected that time pe- riod," O'Neill notes. "Additionally, the interior office im- provements were last renovated in the late 1990s and were in need of mod- ernization. Upon close of escrow, we obtained city approvals for significant renovations and work is currently un- derway." Though the asset may be older, Cap- Rock engaged a 3D graphics technol- ogy company to provide prospective tenants with a virtual reality (VR) tour of the finished product. "We believe there will continue to be opportunities to reposition and renovate existing industrial buildings with functional utility in infill mar- kets," O'Neill says. "In general, we have seen increased appetite by qual- ity tenants for more immersive insight into prospective property offerings. With VR tours and other technology, we are pleased to continue to partner with cutting-edge providers to stay ahead of the market. The next decade will be an interesting period of change and resilient investors will adapt to meet the demands of tomorrow's in- dustrial occupiers." Retail Needs Industrial Not all needs can be met through conversion and redevelopment, how- ever. While it's not possible to conjure up open space in tight markets like Los Angeles simply by scrunching one's nose, there are other options along well-traveled corridors that can accommodate last-mile demands. "Distribution us- ers over the past 20 years have utilized logistics technology to continue to real- ize efficiencies in delivering product from the manufac- turer to the consum- er," says Joseph N. Rentfro, executive vice president of real estate for Tejon Ranch Co. "Larger ful- fillment operations such as Amazon continue to hone the logistics models to be as efficient as possible, but each user's needs are a bit different." That's why Rentfro and his compa- ny set out to be a bit different. Rather than compete with port-side own- ers, Tejon Ranch Co. developed the 20-million-square-foot Tejon Ranch Commerce Center less than 40 miles south of Bakersfield and about 80 miles north of Downtown Los An- geles. This area offered what many others didn't — lots of open space — about 1,450 acres, to be exact. Tejon Ranch Commerce Center is now home to IKEA, Famous Footwear and Cater- pillar, among others. Tejon Ranch Co. also has separate joint ventures with the Rockefeller Group and Majestic Realty Co. The center's newest building is a 480,000-square-foot facility that was completed in 2017. Dollar General has leased 240,000 square feet of this space to expand its area operations. "This building is addressing the needs of the fastest-growing segment of the industrial sector, which is distri- bution," Rentfro says. "With such scar- city of product and land to the south, the Tejon Ranch Commerce Center is the alternative for the user looking to expand in a business-friendly envi- ronment at a great value compared to alternatives to the south." DeGrinis, who handles Tejon Ranch Commerce Center's leasing along with a larger Colliers team, believes we will continue to see companies seek out alternative locations as it's becoming infeasible to absorb large chunks of industrial space near city cores. "User appetite for additional space in North Los Angeles is very strong, however, a lack of available inven- tory for users is very problematic," he says. "Add the fact that there is virtually no available land for de- velopment, which is creating stress on many San Fernando Valley users interested in expanding or relocation. There just are not enough buildings to satisfy tenant demand, and this is manifesting in much higher lease and sale pricing. Given the scarcity of land to develop in North LA, the Te- jon opportunity offers users the abil- ity to expand in a business-friendly environment with tremendous labor capacity." Wonderful Real Estate took a simi- lar approach, targeting 1,625 acres northwest of Bakersfield where it built Wonderful Industrial Park (WIP). The park, located in Shafter, is now home to FedEx, Target, Ross, American Tire Distributors and Formica. The latest tenant to take advantage of WIP's vast square footage options is Essendant Co. The business product wholesale distributor signed a built-to-suit lease for 405,299 square feet, which it plans to use for its local and regional fulfil- ment, ecommerce and distribution needs. "Essendant was looking to imple- ment a new distribution strategy and sought out a facility that would al- low them to distribute from North Los Angeles to the Bay Area," says Joe Vargas, president of Wonderful Real Estate Development. "The newly implemented strategy allowed Essen- dant to consolidate several smaller fa- cilities into one large regional center." Wonderful also recently completed a new 1-million-square-foot speculative facility at its park. This space is one of only a handful of U.S. spec industrial buildings to offer 1 million square feet with 40-foot clear height, oversized, large truck courts and access to four major U.S. ports. Vargas believes these types of spec projects are a good bet as the substantial size needs of industrial users is likely to increase in the future, thanks to ecommerce. "The need for mega-box facilities doesn't look like it's going anywhere, thus, developers and users will look at previously ignored locations where there are large tracts of available land for development at a price that makes sense for both owner returns and user rents," he asserts. "Spec is important to the user as the majority of users around the country are still formulat- ing their supply chain strategy. Once these decisions are made, they need to execute quickly to become operation- al. An existing building enables users to act now as opposed to waiting 12 months for a new building." WIP is further luring ecommerce us- ers to its facility through its amenities and convenient location — regardless of whether you've heard of their town or not. The park is situated within a one-day truck turn to 35 million cus- tomers and a two-day turn to more than 70 million, providing it with the shortest average distance to major populations centers within the West- ern U.S. WIP also features an on-site rail yard with more than 17,000 feet of track and direct access to Burlington Northern Santa Fe (BNSF) Railway's mainline. The City of Shafter has invested in the further development of an existing rail terminal with 18,000 linear feet of track next to the BNSF mainline. The adjacent inland depot allows import- ers to arrange for inbound containers, while terminating their empty con- tainers all on one site. Tenants at the park further benefit from an on-site FedEx Ground hub, which boasts a 9 p.m. deadline for FedEx shipments, allowing extended time for orders and deliveries in Mountain and Cen- tral time zones. As delivery times, technological ad- vances and automation become more and more sophisticated, Vargas — along with many other industrial de- velopers — knows where his strategy lies, now and in the future. That's con- tinuing to do what he and his business partners do best. "We want to continue to be a pre- mier location for servicing 70 mil- lion people in a two-day truck turn- around and for establishing a loyal employee base that results in mini- mal turnover," he says. "The growth of ecommerce and two-day or less fulfilment to consumers will continue to dominate the needs of industrial tenants and the response of indus- trial developers as they design fa- cilities to fit these needs. Growth has been spurred over the past several years by the rise of the omnichannel and ecommerce fulfillment, as well as new mega-box distribution centers. Ecommerce, in particular, will con- tinue to change the face of industrial real estate." n O'Neill Tejon Ranch Co. developed the 20-million-square-foot Tejon Ranch Commerce Center less than 40 miles south of Bakersfield and about 80 miles north of Downtown Los Angeles. Rentfro carrying out their mission of pro- viding counter-cyclical debt in the multifamily space, especially for affordable housing. More than 80 percent of the units that Fannie Mae and Freddie Mac financed in the first quarter are affordable to fami- lies earning at or below AMI. "The fact that Fannie Mae and Freddie Mac are in the market every day delivering liquidity provides confidence to the marketplace, which drives continued invest- ment, and that is what we need," says Lutz. continued from page 33

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