Smaller Tenants Buoy Market As Larger Firms Are Sidelined

Staff Reporter

The San Gabriel Valley real estate market hobbled along last quarter, relying on L.A.'s stable of mid-size companies and record low interest rates to keep from backsliding too far.

With many Fortune 500 companies eschewing any major moves pending a pickup in the national economy, there were few large deals to sustain the valley's 164 million-square-foot industrial base.

A slew of smaller ones, though, often with Asian-oriented trading companies, kept the market's vacancy rate nearly even. And with interest rates at rock bottom, any building for sale didn't stay vacant very long.

"The national companies are still being very frugal about making any moves, but it's my sense that California and Southern California, and the San Gabriel Valley in particular, are doing better than the rest of the country," said Kent Stalwick, senior managing director at Insignia/ESG.

Still, the figures for the second quarter, as compiled by the Grubb & Ellis Co., were hardly impressive.

The industrial vacancy rate rose one-tenth of a percent to 2.8 percent as total sales and lease activity fell to 1.5 million square feet from 2.2 million square feet in the first three months. Asking rents rose a penny, to 45 cents.

It was much the same for the 14.3 million-square-foot office market, which saw vacancy rates rise to 12.2 percent from 12 percent in the first quarter as the market absorbed nearly 124,000 square feet of space.

The office market also was dominated by a host of small deals, with the exception of an unusually large one involving the American Red Cross.

The organization is becoming the anchor tenant at a biotech park at Cal Poly Pomona. It plans to build a regional headquarters at the park as well as a blood processing facility in 230,000 square feet of space it leased for 25 years at $1.25 triple net (exclusive of taxes, utilities and insurance).

Trade ties

The biggest industrial deal for the quarter exemplified the market.

Majestic Realty Co. leased a stand-alone 140,000-square-foot food warehouse that had been vacated six months earlier by a Kraft Co. subsidiary to Vien Dong, an Asian company that distributes wholesale seafood to the restaurant industry and other buyers.

After protracted discussions, Vien Dong leased the space on Hacienda Boulevard in Industry for 10 years at 49 cents gross (including taxes, utilities and insurance), with Majestic agreeing to several tenant improvements, including a new roof and a freezer repair.

"There was a lot of negotiation," said Terry Baker, a Majestic vice president. "The market is not on fire but at the same time we are leasing buildings."

Other deals were smaller, such as the 63,500 square feet that Closet World leased at a standalone building on Capitol Avenue in Industry.

There were several even smaller deals, such as one in which China Direct, a general merchandise distributor, leased nearly 25,000 square feet of space at the Shea Industrial Park in Industry for 36 months at 63 cents gross.

Anzo Motors, a distributor of automotive after market parts, including the kinds used to soup up small Asian imports, also took 30,500 feet of space at the park for 48 months at 57 cents gross.

Stalwick said these are the kinds of companies that often would buy a building but with few opportunities "they are forced to lease." Indeed, in one of the few examples where buildings were available for sale, the available product was gobbled up.

The Imperial Business Park, a new 13.5-acre industrial park in Industry that finished construction last quarter, saw all six of its buildings close escrow the same day the park was completed.

The sales ranged in size from $4.6 million for a 66,000-square-foot building to $1.9 million for a 22,000-square-foot building deals that topped $70 a square foot. Auto Smart, an automotive parts distributor, bought the largest building.

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