sangabe/mike1st/mark2nd

By BOB HOWARD

Contributing Reporter

The San Gabriel Valley is one of the strongest industrial real estate markets in Southern California, with robust demand from both Fortune 500 and Asian electronics firms for warehousing and distribution space.

To help supply that demand, CalMat Properties Co. is expected to break ground this quarter on a 110-acre industrial park in Irwindale. The project is to be built on a site at the corner of Arrow Highway and Irwindale Avenue.

Jim Center, a senior vice president with Grubb & Ellis Co., said CalMat plans to get going this quarter on infrastructure work for the project, which involves filling in a former sand-and-gravel quarry and eventually building 2.1 million square feet of industrial space.

After the infrastructure is completed, CalMat plans to sell parcels, construct build-to-suit projects and possibly build speculative space. Center estimated that the infrastructure work will be done at the end of the summer.

“This is one of the few places in the San Gabriel Valley where you can find anything more than about 10 acres of empty land,” said Center, who added that “hardly any” vacant land remains for new industrial construction in the San Gabriel Valley.

As a result, some developers are creating new space by modernizing existing properties, Center and other brokers noted.

Stuart Milligan, a broker in the downtown Los Angeles office of Cushman & Wakefield, said there is “tremendous interest” from prospective tenants at a 645,000-square-foot former Carrier Co. air conditioner manufacturing factory on Anaheim-Puente Road at the Pomona (60) Freeway in the City of Industry.

The former factory was bought last year by Denver-based Cherokee Simon Realty, which renamed it Industry Distribution Center and is converting it to modern warehouse space.

Milligan said many of the tenants in the converted space are expected to be Asian-owned electronics firms, which have flocked into the San Gabriel Valley over the past 10 years and are now expanding into larger spaces.

Milligan, who is marketing the development for Cherokee Simon, said the project is expected to be completed the first week in May. It is approximately 20 percent preleased.

“We’ve been negotiating deals ranging from 21,000 square feet to about 80,000 square feet,” Milligan said. “There has been a constant stream of inquiries, especially from the Asian electronics firms.”

Milligan said that besides converting the former air conditioner factory, Cherokee Simon plans to sell adjacent parcels of land that it owns to developers who will build industrial buildings for sale and lease.

According to Center, the demand for industrial space both from smaller tenants and from those looking for so-called “big box” space should push up rents on industrial space in the San Gabriel Valley by up to 15 percent by the end of the year.

“We’ve got a healthy economy, a shortage of space and not a lot of land to build on here,” said Center, who said he expects sales prices for industrial property to increase as well.

“It’s harder to make a comparison on sales prices because there is very little for sale, but I think there will be a commensurate increase in prices for anything that is sold,” he said.

With a industrial vacancy rate of 6.06 percent and lease rates in the low to mid 30-cent range per square foot per month, Center said, the San Gabriel Valley is one of the tightest industrial markets in Los Angeles County and is likely to remain that way because there is little vacant land upon which to build.

“Right now, anybody looking for a large space is hard-pressed to find it,” Center said.

Another news event with significant real estate ramifications was the Santa Anita Cos. April 13 announcement that it will merge with Meditrust, a health care real estate investment trust. The deal, valued at about $383 million and subject to regulatory and shareholder approval, means horse racing will likely continue at the Santa Anita racetrack.

Another group vying to buy Santa Anita Cos. was said to be considering shutting down the landmark track and redeveloping the property to higher-value uses. But the bid by that group, a partnership between Colony Capital Inc. and Koll Co., seemed as of last week to have been derailed by the Meditrust deal.

As for the San Gabriel Valley office market, it has been much less active and has had a much higher vacancy rate than the industrial market. One of the larger office leases of the past several years, however, was signed during the first quarter, according to Tim Cullen, leasing director at Majestic Realty Co.’s 110-acre Crossroads Business Park in the City of Industry.

Cullen said Edison International signed a four-and-a-half year lease for a full floor of 20,130 square feet at the center, doubling the amount of space it occupies.

Cullen said that except for the Edison lease, most of the first-quarter office leasing in the San Gabriel Valley consisted of smaller deals leases of 1,000 to 5,000 square feet.

The office vacancy rate was 21.3 percent in the San Gabriel Valley at the end of the first quarter, down from 25 percent a year earlier and 22.2 percent a quarter earlier, according to Grubb & Ellis.

Cullen said the slowly declining vacancy rate is the result of smaller companies growing and leasing up more space, combined with a lack of new construction.

“We’re signing more small leases to fill in our smaller remaining spaces, and we’re getting a lot more serious inquiries from smaller users that have some sense of urgency about doing the deals,” Cullen said. “Previously, we had a lot of tire-kickers, but they had less of a sense of urgency about occupying the space.”

Major Events

– Sanyo Logistics Corp. of Torrance leased 300,000 square feet of industrial space in the City of Industry. The deal involved two buildings: a 100,000-square-foot warehouse at 18960 E. San Jose Ave. in Nogales Industrial Park and a 200,000-square-foot building at Rowland Avenue and Lawson Street. The deal was for three years for a consideration of approximately $4 million.

– View Sonic Inc., a manufacturer of computer components, signed a lease on 300,000 square feet in a build-to-suit project in Catellus Industrial Park on Brea Canyon Road in the City of Industry.

– Reuland Electric Co. signed a 10-year, $6.7 million lease on 176,000 square feet of space at 2225 Workman Mill Road in the City of Industry.

– Alta Dena Dairy bought a 38,500-square-foot food processing building at 17575 Valley Blvd. in the City of Industry from a private investor, Thomas Wheeler, for $2.25 million.