The Otay Mesa submarket of San Diego remains a hot industrial market. Stockbridge Capital Group has sold the Otay Mesa Industrial Portfolio, a 703,215-square-foot multi-tenant industrial portfolio comprising six properties and 14 buildings, to Newport Beach, California–based institutional-fund manager BKM Capital Partners, a representative of BKM Capital Partners reports in a statement.
No sales price was given for the transaction. SoCal Real Estate contacted the representative for this information and was told it was undisclosed.
Located adjacent to the U.S./Mexico border, which the statement calls “one of the busiest border crossings in the Western Hemisphere with an estimated $243 billion of goods exported across it each year,” the portfolio is 97 percent occupied by 44 diverse tenants, with in-place rents approximately 24 percent below market value, the statement says.
The six properties in the portfolio include Borderpoint Business Park at 6754, 6744, and 6794 Calle De Linea; San Diego International Center at 8830 Siempre Viva Road; Faraday Industrial Park at 2325, 2345, 2365, 2375 Michael Faraday Drive and 2350 Marconi Place; Otay Business Center at 6987 and 6995 Calle De Linea; Frontera Business Center at 2695 Customhouse Court; and Otay Crossing Business Park at 2340 Enrico Fermi Drive and 10025 Siempre Viva Road, the statement says, adding that Cushman and Wakefield represented the seller.
The release also says that while the assets are “highly functional,” BKM plans to implement a series of cosmetic capital improvements to the property, including new paint, landscaping, and signage as well as structural improvements such as updated HVAC systems and new roofs. BKM’s CEO and co-funder Brian Malliet is quoted in the release as saying, “This was a rare opportunity to acquire a portfolio of critical mass at a discount to its replacement cost in one of Southern California’s fastest growing submarkets.”
Malliet is also quoted as saying that Otay Mesa has undergone rapid expansion over the last few years and is poised for long-term growth. “In fact, industrial vacancy in the region is at an all-time low of 4.5 percent, and industrial rents have increased by more than 16 percent in the last two years alone.”
He adds in the release that the portfolio’s location allows immediate access to the border and the SR-905 and I-5 freeways, which has attracted major corporations to the area including Kraft, Sharp, Bose, General Dynamics, and Camelback. These firms, he says in the statement, “have already taken large positions in Otay Mesa in order to bolster access to key components of the supply chain. With the opening of the new Port of Entry to Mexico (Fwy-11) in late 2019, demand for high-quality industrial assets in the region will continue to grow, further placing upwards pressure on rental rates.”
Brett Turner, director of acquisitions at BKM, comments in the statement that the nearly 100 percent occupied portfolio “provides immediate stabilized cash flow, while the diversification among tenants, staggered lease expirations, and varying unit sizes limit rollover exposure.”
Turner adds in the statement that upwards of 60 percent of the lease expirations for tenants in the portfolio are scheduled to expire in the first three years of his firm’s acquisition, “which will allow BKM to quickly increase NOI by bringing rents up to market as leases roll.”
As SoCal Real Estate reported in May, BKM closed its second institutional fund, BKM Industrial Value Fund II L.P., for the first time, with $135 million in equity commitments as well as $25 million in co-investments, according to a representative of the firm. At that time, BKM also currently had an additional $100 million of soft-circled equity commitments from European and U.S. institutional investors.