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Industrial Beat

Something about Southern California in the spring time >From the Inland Empire to Los Angeles County, Southern California >developers continue a torrid pace of new development. Four developers have >more than 3 million sq. ft. of development on tap for the region.

Overton, Moore & Associates Inc. and Pacific Coast Capital Partners, both of Los Angeles, have broken ground on the $115 million Port Los Angeles Distribution Center in San Pedro, Calif. The development is adjacent to the ports of Los Angeles and Long Beach and the Harbor Freeway (110). Los Angeles-based CB Richard Ellis will market and lease the development, which is targeted for users requiring 200,000 sq. ft. or more.

Phase one of the 81-acre development will consist of two buildings totaling 550,000 sq. ft., with phase two adding 1.2 million sq. ft. of distribution space. The buildings will feature 30-ft. interior clearance, 135-ft. truck courts and one door per 5,000 sq. ft. The first phase is scheduled for occupancy in the fourth quarter.

In Fontana, Calif., Newport Beach, Calif.-based Western Realco has begun construction on Commerce Way Distribution Center, a $24 million, 817,750 sq. ft. development within the Sierra Gateway Commerce Center. Western Realco is developing the project on behalf of Des Moines, Iowa-based Principal Capital Management. The building is earmarked for a single tenant, but can be divided for users requiring 200,000 sq. ft. or more. The Ontario, Calif., office of CB Richard Ellis is Commerce Way Distribution Center's marketing agent. Completion is slated for this summer.

Newport Beach-based Master Development Corp. has purchased 20 acres in Ontario, Calif., from San Francisco-based Catellus Development Corp. for development of four industrial buildings. The new development, The Crossroads Collection, is scheduled to break ground this month, and construction is slated for completion in December.

Construction plans call for a 140,000 sq. ft. structure, a 103,000 sq. ft. building, a 98,000 sq. ft. building and a 98,000 sq. ft. edifice. Commerce, Calif.-based Lee & Associates is leasing The Crossroads Collection.

Lest we forget Northern California While things are heating up down south, Newport Beach-based Koll Development Co. has 20 acres lined up to develop 405,000 sq. ft. at Willowbrook Business Center in Northern California. Located in Union City, Calif., phase one of Willowbrook Business Center will be completed this quarter and includes the complete renovation of an existing 185,500 sq. ft. warehouse/manufacturing facility.

Phase two of Willowbrook includes four R&D/light industrial buildings totaling more than 219,000 sq. ft.; an 89,200 sq. ft. warehouse; a 52,151 sq. ft. light industrial/distribution building; a 47,912 sq. ft. industrial building; and a 30,200 sq. ft. flex building. Construction of phase two is scheduled for completion in the fourth quarter.

Atlanta treats Panattoni, HSA/Read all right At opposite ends of the metro area, Sacramento, Calif.-based Panattoni Development Co. and Chicago-based HSA/Read (the acquisition and development arm of HSA Commercial Real Estate) have put together deals in Atlanta's primary industrial submarkets. In the Northeast submarket, Panattoni has signed Irvine, Calif.-based Kia Motors America Inc. to a 317,400 sq. ft. lease in a 451,000 sq. ft. building at Newpoint Distribution Center.

The auto manufacturer will move into the distribution space in June. The Atlanta office of New York-based Julien J. Studley arranged the lease.

Near Atlanta's Hartsfield International Airport, HSA/Read has acquired a 700,000 sq. ft. facility from locally based MIMMS Enterprises. Locally based NAI Brannen Goddard represented HSA/Read. The multi-tenant property has been renamed Airport North Distribution Center. With the acquisition, HSA/Read owns more than 1 million sq. ft. in Atlanta.

Airport North is 80% occupied. HSA/Read plans to demolish nonfunctioning areas of the property and upgrade the remaining areas. The 36-acre site can accommodate additional development, and HSA/Read expects Airport North to benefit from Hartsfield's expansion and the displacement of 1.5 million sq. ft. of industrial property recently condemned and acquired by the Atlanta Airport Authority.

As part of its plan to acquire and develop $80 million to $100 million in industrial properties, HSA/Read also has acquired a 184,000 sq. ft. industrial property in Mojave County, Ariz., from Atlanta-based Kimberly Clark. In Jacksonville, Fla., HSA/Read has acquired a 154,000 sq. ft. industrial facility from Atlanta-based Lend Lease.

W.P. Carey continues sale-leaseback run On behalf of its Corporate Property Associates 14 subsidiary, New York-based W.P. Carey & Co. has acquired three flex properties on a sale-leaseback basis. The developments are in New York, Illinois and California.

W.P. Carey acquired a to-be-built facility for Barjan Products LLC from San Antonio-based USAA Real Estate Co. for more than $11 million. Barjan will use the 240,000 sq. ft. Rock Island, Ill., flex development asits headquarters and key distribution facility. Barjan signed a 16-year, bond-type net lease for the facility, which is scheduled for completion in June.

In other sale-leaseback deals, W.P. Carey also has acquired flex developments in North Amityville, N.Y., and Valencia, Calif., from Woodland Hills, Calif.-based Stellex Technologies Inc. The 228,000 sq. ft. Amityville facility is leased by Monitor Aerospace Corp., a subsidiary of Stellex, while another Stellex subsidiary, Paragon Precision Products Inc., will lease 54,000 sq. ft. in Valencia, Calif. Monitor and Paragon signed separate 20-year net leases to be followed by two 10-year options.

Home Depot rides again and other Chicagoland deals Continuing to expand its Midwest distribution capabilities, Atlanta-based Home Depot has signed a build-to-suit lease for a 171,000 sq. ft. rail-served building in Montgomery, Ill. Locally based NAI Hiffman negotiated the transaction between Home Depot and locally based developer CenterPoint Properties.

Located on 22 acres, Home Depot will use the facility for its Midwestern lumber distribution efforts. The pre-case concrete building also includes 3,000 sq. ft. of office space.

Also in Chicagoland, Rosemont, Ill.-based Colliers Bennett & Kahnweiler (CB&K) arranged two 100,000 sq. ft. leases. In Franklin Park, Ill., CB&K represented Detroit-based Ford Motor Co. in a 155,000 sq. ft. relocation and expansion lease. Ford is moving from its current Melrose Park, Ill., location.

In Elk Grove Village, CB&K represented Palo Alto, Calif.-based and building owner CenterPoint in the lease of a 120,020 sq. ft. building. specializes in the reselling of used medical equipment and is expanding its operations in the Midwest.

I.CON: An idea whose time has come Sure, industrial real estate has a reputation of being solid if not a bit vanilla, but the industry, like all of commercial real estate, stands at a crossroads with dilemmas driven by technology, public vs. private ownership and a litany of other issues. With so much rapid change during the past two years and so much more ahead, I.CON, the first-ever conference aimed at the industrial market, proved a valuable experience. Sponsored by the National Association of Industrial and Office Properties (NAIOP), the IRDC Foundation and the Society of Industrial and Office Realtors (SIOR), I.CON recently was held in Irvine, Calif.

Some highlights:

On the tech side, AMB Institutional Realty Investors' Luis Belmonte and Wayne Prior, along with CEO David Robinson discussed the mania that is sweeping industrial real estate and every other sector of the economy. While the conventional wisdom at I.CON was that real estate companies are not venture capitalists, Belmonte presented a contrarian view.

"If you are going to rent space to a start-up company, you are, in fact, a venture capitalist," he said. "You have to start thinking like a venture capitalist to stay in business."

The ever-eloquent Belmonte, who serves as managing director of development, pointed out five tips to working with high-tech, especially start-up, tenants: one, get a piece of the upside, whether it is options or warrants; two, ask a startup to give you the same pitch it gave its venture capital investors.

"I want to understand what business the company's in because that's what I'm investing in," Belmonte said.

Third, you have to ask a new high-tech tenant to explain the barriers to entry. With the Internet, generally there are none. Fourth, what is the burn rate? When will the venture capital money run out if the potential tenant does not receive any more? And fifth, what is the potential to raise more money?

Across the board, I.CON's "Capital Markets Gang" was bullish.

Investors love infill, multi-tenant properties, but subordinate bond issuers aren't especially fond of single-tenant properties, especially if that single tenant is a startup, said Martin Lanigan, managing director of Prudential Mortgage Capital.

"As you're building industrial [developments], spend a little more time looking at your tenant mix," Lanigan suggested. "These new types of industrial companies, frankly, are not going to enjoy some of the same benefits."

George Kok, principal and co-head of Morgan Stanley Dean Witter's conduit unit, said the company intends to lend about $500 million on industrial properties this year, while Lanigan said Prudential will lend as much as it feasibly can.

When asked if there was too much capital chasing too little product, the panel, which also included Steve McKenzie, managing director for Eastdil Realty's Los Angeles office; and moderator Lesia Bates, vice president and senior analyst at Moody's, answered with a resounding "yes." McKenzie pointed to a lag in good judgment, while Lanigan said that below break-even, questionable deals were being made out of naivete and because many in the conduit business felt their jobs were on the line and had to make some kind, any kind of deal.

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