Inland Empire

strength returns to the empire with renewed investor interest after a weak four-year period

After nearly four years of lackluster activity, the Inland Empire, Calif., area is looking good to real estate entrepreneurs like Michael A. Pollack. Pollack, who over the past decade has been involved in the development of more than 6 million sq. ft. of projects nationwide, has a well-honed skill of going into underperforming markets at the most opportune time.

"The Inland Empire appears to be finally turning the corner, and that is appealing to individuals such as myself who seek real estate with good upside potential," says Pollack. "Typically we look for a 25% to 100% return on our investor's money and the Inland Empire could provide such yields."

Such increasing interest by outsiders in the Inland Empire is good news for the Riverside/San Bernardino counties, adds David A. Wette, first vice president and regional manager of Marcus & Millichap. "If someone like Pollack is considering getting in, it could mean the market is starting to turn around," says Wette. "Pollack has perfect timing and he has the experience to follow through. His lead could mean others looking for bargains will follow."

Any increased real estate activity would certainly be welcome in the two-county area. "Things have been slow for a while, but it's improving," explains Joseph W. Brady, publisher of The Bradco High Desert Report. Dennis Tyler of the Inland Empire office of Grubb & Ellis adds that the retail sector is particularly strong, with "construction activity expected to remain healthy but not as robust as the early 1990s."

Throughout the Riverside and San Bernardino counties, retail centers are being built, expanded or renovated. Barstow -- midway between Los Angeles and Las Vegas -- continues to be a mecca for factory outlets. Lenwood's Factory Merchants Mall is expanding by two-thirds; among the stores to occupy the additional 136,000 sq. ft. are Mark Cross, Timberland and J. Crew. Next door, a second phase of the Tanger Factory Outlet Center is being planned that will add more than 120,000 sq. ft.

Rothbard Development has submitted plans for a 93,000 sq. ft. shopping center in Apple Valley while construction is under way on a 117,000 sq. ft. K mart

Center at Escondido and Main Street in Hesperia. Majestic Realty Co. has also begun building its 200,000 sq. ft. Chino Spectrum Market Place at Corona Expressway.

Commercial activity is rising

A new state office building and a Cal Trans structure at E Street between Fourth and Fifth streets in San Bernardino -- totaling 212,000 sq. ft. and valued at $50 million -- are adding impetus in the commercial market as is the third phase of the $30 million Justice Center in Indio. Mark Piscitelli, manager of Grubb & Ellis, says the office market will continue to stabiliz with net absorption increasing slightly from last year. "The decline in rents and prices in Los Angeles and Orange counties has increased the attractiveness of office construction in the Inland Empire," he adds.

The total office inventory for the fourth quarter was 18.7 million sq. ft., an analysis by CB Commercial shows; of this, 3.5 million sq. ft. was available for rent, a vacancy rate of 18.4%.

On the multifamily residential side, construction of apartments is slowing. "The very low level of multifamily starts in Riverside/San Bernardino is laying the groundwork for a huge shortage of units," states a report by F. W. Dodge, McGraw Hill Inc. Even so, USA Properties Inc. is planning a 10-building development, Cathedral City Apartments, on Converse Street in Cathedral City while a 612-unit complex by Cook Hovley Street Associates is slated for Palm Desert.

Industrial sector remains active

The Inland Empire's industrial sector remains active, with less product being built and rents creeping upward. Ontario, one of the few area markets with industrial-zoned land available for large build-to-suit developments, reports an increase in industrial activity. Bridgestone/Fire. stone, for example, has leased 107,000 sq. ft. at 14605 Miller Ave. in Ontario, while Institutional Secured Properties purchased a 62,500 sq. ft. structure from BA Properties at 7360 Jurupa Ave. in Riverside. "Already the area has experienced a rental increase of a dime per sq. ft. in buildings," says David Consani, senior vice president and industrial specialist in the Riverside office of CB Commercial.

Glenborough Corp., San Mateo, Calif., has been retained to provide property management, asset management and partnership administration for nine partnerships originally formed by Rancon Financial Corp. The portfolio includes 19 offices, industrial and retail properties consisting of 1.3 million sq. ft., 941 apartment units in four properties and almost 1,600 acres of commercial and residential land.

Most of the portfolio is in the Inland Empire area, with the most notable properties being Tri-City Corporate Center, a 159-acre business park in San Bernardino and Rancon Center Ontario, a 70-acre industrial park. The Inland Empire portion consists of 700,000 sq. ft. of office space, 338,000 sq. ft. of industrial, 80,000 sq. ft. of retail and about 1,000 acres of land.

Walter Hahn, director of real estate consulting in Kenneth Leventhal & Co.'s Newport Beach, Calif., office, expects industrial development and leasing activity to increase, with up to 10 million sq. ft. of industrial space potentially being built and leased in 1997. However, development and leasing of office space will remain lackluster as the region slowly evolves from a manufacturing to a service-based economy.

"My outlook is that the Inland Empire will continue to capture a major share of manufacturing and warehouse/distribution facilities moving out of Los Angeles and Orange counties," Hahn says. "That means more people, more jobs, more demand for commercial and industrial buildings, and for more housing. The Inland Empire has the potential of being the most rapidly growing area in California and one of the most rapidly growing in the United States."

In terms of job growth, Hahn says that the Inland Empire gained a significant number of new jobs in 1994, going to 20,000 from 3,000 in 1993. "I project 30,000 new jobs being created in 1995, and 40,000 new jobs in 1996 before dropping down to 35,000 new jobs in 1997 as the U.S. economy starts to slide into the next national recession," he says.

Although it has been affected by several blips over the past few years, the Inland Empire is expected to continue to be a strong market in the years ahead. "The commute to Los Angeles has become even more difficult so businesses are moving people to where land values are more affordable," notes Michael D. Bolen, president of McCarthy Pacific Division. "Traffic congestion has served as an impetus for businesses to locate to the Inland Empire."

Mike Sheridan is a Houston-based freelance writer who contributes regularly to a number of national magazines.

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