With demand for high-quality industrial real estate soaring, the Voit Cos. is shifting gears in its development of the former General Motors plant in Panorama City.
While the company originally planned to build only after securing commitments from tenants, it now is going ahead with a riskier strategy of speculative development that is, constructing a facility without first having a tenant lined up to move in.
Voit plans to build a 155,000-square-foot industrial building on spec and may go ahead with another such project on the 600,000-square-foot property once this one is leased.
"We're confident in the market," said Bob Lumley, vice president of development for Voit, which is developing "The Plant" along with Selleck Development Group Inc. "We will have all 600,000 square feet built within 24 months."
The move reflects a dramatic turnaround in the industrial real estate market. As the economy has improved and companies are expanding, the occupancy rate in the San Fernando Valley has dropped to about 2 percent for larger industrial spaces. With virtually no space available in the Valley, many companies have turned to Valencia to meet their growing need for state-of-the-art industrial facilities.
Voit's first and so far only tenant for the industrial center at the former auto plant, Ricon Corp., originally had planned to move into a 155,000-square-foot space on the property. But in recent weeks, the company's needs had expanded beyond earlier expectations.
"We started working with the architect and we were excited about going there, but we needed bigger shoes," said Ricon President Andrew Loduha.
So Voit agreed to build a new 200,000-square-foot facility for Ricon in the center, and also opted to continue with construction of the first building despite the fact that it no longer has a tenant.
Voit officials said it made sense to continue development of the first building because the bulk of the design work has been completed. Lumley said he expects to have that building leased within four months, and he is currently working with a number of interested companies on build-to-suit projects as well.
At the same time, the company will begin construction on another speculative building once the first one is leased, provided it has not locked in any deals with tenants seeking facilities built for them, said Lumley.
Though the decision to add the first speculative building to the development resulted from Ricon's change of mind, the region's economic recovery also played a role. What's more, the Panorama City development offers features unique in the San Fernando Valley, such as space for large, 200,000-square-foot users and 32-foot ceilings with sophisticated sprinkler systems.
"With speculative building, you have to finance it, and once you finance it, if no one moves in, you'll lose the property," said Brent Weirick, a broker with Seeley Co. in Encino. "In the past couple of years, it's been real hard to finance those transactions."
What's happened in the industrial portion of the development stands in contrast to the retail component, where tenants tend to seek space several years in advance. Retail space at The Plant is 95 percent leased, according to Dan Selleck, president of the firm developing the retail portion of the property.
But while retailers seek sites years in advance to accommodate long-term growth plans, industrial tenants are apt to wait until their leases are nearly up before shopping for a new site, developers said. And though some have specialized needs that require them to seek build-to-suit deals, many others can adapt to pre-designed spaces.
That's why, brokers said, a nearby speculative industrial center has attracted tenants so quickly. The developers of the Lewis Business Center signed two tenants for a total of 184,000 square feet "even before the walls were up," said Mike Clark, a broker at Cushman & Wakefield Inc., which is handling the development for Lewis Co. in Santa Monica.
The space at the Business Center is leasing for 59 cents to 63 cents per square foot, depending on the size.
"In a normal market there is enormous demand for immediate space rather than the willingness to wait for a build-to-suit facility," said John Lewis, who acquired the property in partnership with Prudential Real Estate Investors from Litton Industries Inc. in September 1997. "When the economy began to return, it was clear that, particularly in the San Fernando Valley, there was very little industrial vacancy. Modern industrial facilities were virtually non-existent, so that's what prompted us to build on a speculative basis."
So far, the Lewis Business Center, at Strathern Street and Woodley Avenue in Van Nuys, has signed a division of pharmaceuticals maker Baxter International, now located in Glendale, to a 117,000-square-foot building, and La Brea Bakery Inc. has leased 67,000 square feet, half of a second building.
Though the retail portion of The Plant has stuck closer to its original plan than the industrial portion, it too has had some zig-zags.
Originally slated to start this month, construction has been delayed by the recent rains, said Selleck. Now about 60 days behind schedule, the stores are expected to open in October and the movie theater will follow in November "subject to El Ni & #324;o," Selleck said.
The site will be anchored by a Home Depot and an Office Max along with a 16-screen Mann movie theater.
Other tenants include Ross Stores, Babies R Us, Party City, Famous Footwear, All Amusement Family Fun Center and Radio Shack. "There's probably 15,000 square feet left to lease," Selleck said.
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