Inland Empire

An unmatched combination of abundant, reasonably priced land, an excellent transportation system and an inexpensive and educated labor force are contributing to an impressive real estate recovery in Southern California's Inland Empire.

The commercial real estate market continues to improve, with rents rising for warehouse, office and multifamily space, analysts say. The Inland Empire also ranks ninth in employment growth, making it ideal for continued development. And, the future holds good things for Riverside and San Bernardino counties, particularly in the red hot industrial and office markets.

"Construction activity, both build- to suit and spec, will continue and demand for space should remain healthy," notes Jeanette I. Rice of Amresco Research in Dallas. "Rental rates this year are expected to rise in the range of 4% to 6%. As long as developable land remains available and reasonably priced, the industrial market will continue to grow."

Peter B. McWilliams of the Ontario office of The Seeley Co. notes that in the past decade the Ontario marketplace has developed into one of the premier distribution hubs in the United States. In the past 10 years, Ontario's industrial base has grown from 60 million sq. ft. to more than 135 million sq. ft.

"The primary reason for this torrid growth has been corporate America's belief that Ontario is well-located to serve the Western states, and that it offers efficient, state-of-the-art industrial buildings," McWilliams adds.

The Inland Empire also has benefitted from the formation of the Coachella Valley Enterprise Zone, the North American Free Trade Agreement (NAFTA) and economic development campaign "Sunrise Inland Empire," which is dedicated to encouraging business growth and creating 50,000 new jobs.

Industrial space poised for growth Jon Walz, senior vice president at John Burnham & Co.-Oncor International, a Southern California real estate firm, predicts the Inland Empire will see a surge in the development of industrial distribution space thanks to NAFTA. "The region is an easy half-day commute from the border," he explains, "and the Inland Empireis the transportation hub of the Southwest, with many of the nation's most important interstates bisecting the area."

Walz adds that of the 521 maquildoras in the Tijuana area, 46 have facilities in the Inland Empire. "This roster is expected to grow dramatically over the next several years," he predicts, citing the area's affordable land and housing, its ample labor pool and solid distribution positioning as primary reasons for growth.

The Inland Empire's two major industrial centers also are posting gains, industry insiders say.

"Corona is exploding," notes Herrick Johnson, vice president in the Riverside office of Lee & Associates. "Basically, Orange County vacancy rates are at low levels, which puts pressure on markets to the west. We're the benefactor because historically, we've always been cheaper, and we also have vacant land to build spec product."

Thus, the market is experiencing a surge in activity by users who are in an expansion mode. Dart Container is adding 200,000 sq. ft. onto 500,000 sq. ft. on Pomona Road, while Fender is adding 250,000 sq. ft. onto the 400,000 sq. ft. it already owns on Railroad Street.

"Talco Plastics just finished a 107,000 sq. ft. manufacturing facility at Lincoln and Railroad in Corona," says Larry Null, vice president at Lee & Associates in Riverside. "And, Smitty Bilt just completed 207,000 sq. ft. of industrial space at Sixth Promenade."

Null says new construction in the sector also is on the rise."Western Realco is building four structures totaling 325,000 sq. ft. at Sixth and Promenade," he adds. "Meridian Industrial Trust also says it's going to do four spec buildings, around 325,000 sq. ft., at Magnolia and I-15 Freeway."

Among those eager to capitalize on the area's growth is Trammell Crow Co., which recently purchased 36 acres of land in Chino to develop Centrepointe-Chino, an 800,000 sq. ft. industrial park. The mixed building complex already is 25% leased.

Over the past 12 months, some of the largest industrial transactions in the Ontario airport area have included Lennar Partners' 900,000 sq. ft. build-to-suit for Pier One Imports, Majestic Realty's development of 750,000 sq. ft. of space for Sanyo Logistics/Aiwa and others, and Bridgestone Tire's 550,000 sq. ft. of build-to-suit space.

In San Bernardino County's Rancho Cucamonga, the transformation of former defense industry manufacturing and administration facilities is helping the market. General Dynamics has transformed its former facility into the 380-acre, high-tech, master planned business community of Empire Lakes Center, which boasts a championship Arnold Palmer-designed golf course.

When fully built, Empire Lakes Center will include a broad mix of retail shops, high-tech manufacturers and research and development facilities.

"Empire Lakes Center is an example of how we can re-engineer these facilities," says Jeff Kudlac, staff vice president of General Dynamics Properties Inc. "By developing value-added, high- return uses, we are able to provide benefits and investment returns to the communities and to our shareholders."

Sales so far have included a three- story, 242,000 sq. ft. corporate office facility to Lincoln Property Co. and a 408,000 sq. ft. manufacturing and office facility to Morgan Stanley Real Estate Fund II LP.

REIT invasion fuels office market After several years of static real estate activity, the office market in the Inland Empire is heating up.

"We haven't quite seen the fires they're having in LA and Orange counties, where it sounds like the market is very hot, but in the Inland Empire, it's definitely warming up," says David G. Mudge, senior vice president at the Riverside office of Lee & Associates. "The market is doing much better, and it is going to be strong for absorption."

Mudge attributes the market's rebound to the purchase of multiple properties last year by REITs such as Arden Realty, Spieker Properties and Kilroy. "That's a large event in a market with 11 million sq. ft. of space, he adds.

"We're just starting to see new building. Ben Day of Day Break Properties is building 1 Corporate Plaza, 47,000 sq. ft. on 10 Freeway and I-15 in Ontario, c ompletely on spec. He has confidence in the marketplace, and the vacancy rate for Class A space is only 13%. Across the street," Mudge continues, "American Trading has broken ground on Empire Towers II, some 70,000 sq. ft. on Inland Empire Drive."

Big-box retailers still struggle On the retail side, net absorptions in the Inland Empire have generally kept pace with completions. Yet, the amount of new construction and fierce competition among big-box retailers has caused net absorption to lag behind other markets in Southern California.

According to Burnham, big-box retailers dominate the market with an intensely competitive attitude, due to the region's strong growth mentality.

"The Inland Empire's retail hot spots include the communities of Temecula, Corona, Chino Hills, Rancho Cucamonga and certain low desert towns where there is strong demand for neighborhood centers to serve rapidly expanding residential development," notes Burnham CEO Dennis Cruzan. "Many neighborhood centers in other areas are coping with stiff competition by re-merchandising or completely redeveloping, often focusing on a specific theme or tenant mix to lure consumers."

The Inland Empire's famed Ontario Mills, a 1.7 million sq. ft. center, attracted more than 14 million people during its first year of operation. Fears that the project would do well at the expense of neighboring retail centers proved unfounded. Instead, it is triggering peripheral development including hotels, restaurants and even other retail centers.

Major Inland Empire projects on the drawing board include several centers in South Corona planned by Hughes Development, Lewis Homes, and Pacific Retail Partners.

The Gardens of El Paseo, a $50 million upscale center in Palm Desert, is being planned by Donahue Schriber as a major promotional center in Murrieta.

Relatively inexpensive housing and employment opportunities will continue to boost the Inland Empire's population base, notes Jeffrey Munger of Amresco. Few new competitions over the next 19 months should allow the market to start a full-fledged recovery. "Occupancy rates should slowly increase and rental rates should roughly stay even with inflation through 1998," he adds. "As the overall Southern California economy continues to expand, the Inland Empire should provide plenty of long-term potential."

With the opening of a new eastern transportation corridor in October, the Inland Empire is preparing for the future. The road links southern Orange County to the westerly border of Corona, connecting to the 91 Freeway.

"It gives Corona access to south and central Orange County, and we've typically drawn from northerly cities," Johnson of Lee & Associates adds. "That opens up a whole new world for us."

When is a museum not a museum? When it is the centerpiece of an impressive, painstakingly planned revitalization of a community.

That is what's happening in the Inland Empire city of Corona, where rock 'n' roll history is being blended with good old-fashioned downtown economic development. The result is not only the Fender Museum of the Arts but also the revival of the city's languishing North Main Street area.

According to John Fleming, economic development coordinator, and Jim Bradley, economic development director, plans call not only for the Fender museum but also for a forum to offer free performing arts education to children with lessons in guitar, piano and drums. Equally important is the fact that the museum will anchor the planned revitalization on one end, with an existing 15-plex Edwards Cinema on the other.

Already the city and Fender have created a not-for-profit organization to build the museum, and the city has held discussions with several national developers about the project.

Proponents believe the Fender Guitar Museum will draw large crowds, particularly since former Fender customers have included Elvis Presley, Chuck Berry and Jimi Hendrix. That's certainly music tothe ears of Corona residents.

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