Industrial real estate had been in high demand even before the start of the Covid-19 pandemic. That demand, experts agree, has only accelerated since the onset of the pandemic.
One developer looking to take advantage of favorable market trends is Santa Monica-based Dedeaux Properties. The company, which was founded in 2006, has a portfolio of roughly 6.5 million square feet of industrial real estate, and 2 million square feet under development or construction.
“With industrial vacancies at an all-time low and demand at a high, we’ve grown our team and our platforms and our brand in the market,” said Brett Dedeaux, the company’s principal. “Now is an opportune time to continue to grow. We’ve taken on a number of ground-up projects and some acquisitions.”
During the first quarter of the year, the industrial vacancy rate in L.A. County was a mere 0.6%, down from 2.9% the previous year, according to data from Jones Lang LaSalle Inc.
Asking rent, meanwhile, was $1.44 a square foot on a triple net basis, an increase of 45 cents in a year.
The Southern California marketplace as a whole has seen similar demand, experts reported.
Dedeaux said that his company is very invested in Southern California, as well as some projects in Northern California and views Kern County and other nearby areas as expansion opportunities as the market in L.A. grows increasingly competitive.
While the company has experience developing and owning a variety of types of industrial assets, its primary focus has long been on logistics properties.
“My family business has been in the logistics sector since the 1930s,” Dedeaux said. “It has given us great visibility.”
That history traces back to Rod Dedeaux, a baseball coach and businessman who used a signing bonus from the Brooklyn Dodgers to buy a truck. He founded his logistics business, DART, in 1936.
Rod Dedeaux, the grandfather of Brett Dedeaux, led USC to 11 national baseball titles and coached two Olympic baseball teams.
Brett Dedeaux said he takes several factors into consideration when deciding the best use for a property, including how far the site is from ports, access to major highways, labor availability and more.
Cold storage and transportation-oriented developments are also part of the Dedeaux portfolio.
“We own some cold storage and we have developed a fair amount of cold storage, particularly in the city of Vernon as we were growing the company,” Dedeaux said.
The company has sold some of those assets over the years, including the Vernon Avenue Logistics Center, which it owned with Ledo Capital Group.
The two have developed other properties together as well.
Cold storage is in high demand, especially because there’s not enough of it.
“There’s a huge void…cold storage is incredibly undersupplied and it’s very difficult to find the right land parcel with the underlying zoning to build those facilities,” said Andrew Briner, an executive managing director at Newmark Group Inc.
Dedeaux Properties has also purchased and built a number of truck terminal properties for use as trailer storage lots.
“That has been considered more special use-type properties, but the marketplace has gotten a lot more active and they’re a key part of the supply chain,” Dedeaux said.
He added that the company has been working with companies to “understand what their specific needs are” with truck terminals and storage.
Briner said there is “an absolute lack of inventory” of truck terminals in L.A.
While Dedeaux Properties at first focused on the Central L.A. market, the company has moved into other areas, and now, larger distribution-oriented properties are a focus for the company in the Inland Empire.
“We felt that there was an opportunity to develop more of those and saw a lack of that product on the market,” Dedeaux said.
Dan de la Paz, an executive vice president at CBRE Group Inc., said the Inland Empire was historically used for farming and agriculture and began as a “low-cost alternative” to developing in L.A. because there was more available land there.
Dedeaux said land parcels are much smaller in size in L.A. County, making it harder to do larger facilities in infill L.A.
“We love the dynamics of the L.A. County marketplace; a lot of those locations are strategic, but there’s just not the available amount of land for the projects of the size that our tenants need,” he said. “As we grew and the size of our tenants grew and the demand grew, it pushed us out to the Inland Empire, and it’s our primary marketplace currently.”
Looking forward, Dedeaux sees the company doing more ground-up development than value-add properties, but thinks there are opportunities for both.
“The challenge with value-add in L.A. is that a lot of that inventory is dated and functionally obsolete, with lower storage clearance or not good truck loading…or not the right configuration for today’s more modern tenants,” he said. “It’s harder to find a building with good bones or good infrastructure where we can reposition it and lease it back up.”
“There are opportunities on the value-add side, but they are a little more challenging, ” he added. “Ground-up is more likely for us in L.A. because we feel there are a lack of good facilities.”
Environmental issues are also a big concern with value-add properties, Dedeaux said, adding that it’s just one factor that can contribute to the way deals need to be structured to make a value-add property worthwhile for the company to pursue.
A rise in interest rates and construction costs are also factors considered when analyzing opportunities.
“Rental rates have gone up a healthy amount, that’s been solid, but the construction costs have gone up a fair amount, in the last 18 months 60%, so we have to keep our eyes close on construction costs and roof structures have been tough to get in a timely manner,” Dedeaux said.
The company is now looking for projects in the $20 million to $100 million range.
“Industrial real estate in Southern California remains strong,” Dedeaux said. “We are going to be, as we do a lot of ground-up development, we’re looking to do more core-plus or value-add deals … and enhance value and income in a short amount of time. We … have a few of those deals on the platform now.”