2008 Real Estate Awards: Creativity Counts

0

The Los Angeles County industrial market is the nation’s largest at just about 1 billion square feet and the nation’s tightest, with a paltry1.5 percent vacancy rate.


There’s the diverse economy, a vast number of international businesses and a manufacturing base that remains the country’s biggest. And that’s not to mention the nation’s largest port complex and its demands for warehousing.

Beyond the numbers, it all adds up to a market that’s complicated for all involved, from developers to brokers to tenants and other players.

So how to succeed in a market like this? In short, experience, knowledge and sophistication are at a premium.

“To have solutions for clients in the face of impossible odds with no apparent answers takes savvy players,” said Bill Boyd, executive vice president at Grubb & Ellis Co. and managing director of the firm’s Los Angeles metropolitan region.

Every year the Business Journal awards standout individuals, companies and others in the real estate industry. This year the paper is highlighting industrial players who have managed to succeed where others have hit walls or stumbled.

There are big established companies such as Majestic Realty Co., the county’s largest privately held industrial developer, which given its size has logically made its name with gargantuan projects such as the City of Industry’s Grand Crossing.

But there are smaller operators such as Koll Co., which found a niche building more modest-sized owner-user projects. Watson Land Co. seized on the demand for energy efficiency with a new series of green buildings. And other companies have found profit in redeveloping infill sites and contaminated properties.

Individuals stand out, too, from brokers like Jeff Smart, who has made a career out of satisfying tenants in the South Bay, to Ken Pulskamp, city manager of Santa Clarita, where an industrial-friendly general plan has allowed the market to flourish.

“There is a need to be creative,” said Bill Goodglick, president of Goodglick Co., a Los Angeles-based industrial brokerage. “I deal with entities that have no lack of money. Money is not the issue. It is finding the product to purchase.”


Innovative players

The industrial real estate players with recent track records for success are a diverse bunch. Consider Watson and its series of Leadership in Energy and Environmental Design-certified industrial properties.

Watson’s “Legacy” building series, which includes a project in Chino and a forthcoming building in Carson, are designed with energy-saving features like drought-tolerant landscaping and abundant glasswork that allows for the use of natural lighting.

The building is a response to tenants’ desire for more efficient industrial space. For now, though, new LEED-certified industrial buildings are being built by large developers and are often leased to large companies who can afford higher rent.

It’s unclear when this movement might trickle down to smaller builders or rehab developers.

“People will attempt to have an economically viable product after they’ve turned it into an LEED property,” Goodglick said. “But an LEED property has got to cost more money. That is reflected in rent.”

However, with a market the size of Los Angeles, smaller players have been able to make their mark.

Seventh Street Development of Long Beach has found it profitable to build business parks such as the Speedway Business Park in Irwindale with less than 200,000 square feet of space. Rexford Industrial LLC of Los Angeles has particularly focused on infill properties in areas that are already built out with big business and industrial parks.

At times these projects are constructed on clean land, but in other cases significant cleanup is involved. But with a 1.5 percent vacancy rate and attendant high lease rates, even smaller players find they can make money on such lots.

“They are willing to look at sites that previously people would say, ‘No, I’m not going to mess with that,'” said Goodglick. “They believe they are expert enough to know how to circumvent the time problem to move things through the funnel faster than others.”

Doug Hinchliffe, a principal at Seventh Street, is one of those risk-takers. He said his company saw a challenge and an opportunity where other developers only saw problems. “We feel there is a lot of industrial property in the L.A. area that hasn’t been fully utilized because of environmental issues.”

The opportunity hasn’t been lost on big developers, either. ProLogis, a huge Denver-based industrial developer, is cleaning up a large site in Carson at 2211 E. Carson St. that once was the location of an aluminum foundry.

Another trend that has surfaced: Amid the easy credit of the past few years, more and more owner-user properties have cropped up, giving small industrial businesses the chance to own their own warehouses and distribution centers.

The Koll Center Industry project capitalized on this niche with four small buildings totaling just 130,000 square feet. The company, knowing it targeted Asian importer-and-exporters, employed the ancient Chinese practice of feng shui which seeks to harmonize objects in the environment. The result was a sell-out before the project was even finished.

For all these players, though, the size and complexity of the Los Angeles market as well as changing economic conditions will test their ingenuity and flexibility.

For example, stricter financing in recent months might kill off the owner-user trend that was so strong over the past few years. Indeed, with the economy and the growth in port traffic slowing, the industrial market likely will experience a downturn.

That means tenant demand might soften and at the same time it likely will be harder to close deals given the loss of easy money and credit. But there will remain a demand for space, so creative players will still have jobs to do.

“We’ve got the biggest manufacturing base in the country and the biggest port in the country. We have a number of generators of jobs here that other places don’t have,” said Sam Foster, a senior vice president with Jones Lang LaSalle Inc. who specializes in industrial transactions. “I don’t think we are going to fall off the edge and get eaten.”

No posts to display