Orange County–based MCA Realty recently acquired two assets in the Inland Empire for a combined total of $26.5 million. The assets included a portion of Stoneridge Towne Centre, a Target and Kohl’s shadow-anchored retail center in Moreno Valley, California; and Diaz Commerce Center, a 131,577 square-foot industrial asset in Temecula, California. SoCal Real Estate spoke with MCA Realty principal Tyler Mattox about owning a variety of property types and why the firm is drawn to the Inland Empire.
SoCal Real Estate: How is purchasing and owning different property types within a market different from just focusing on one property type?
Mattox: We have historically been investors in small and mid-bay industrial product in the western U.S. Our willingness to consider other product types is largely a function of the industrial market being expensive on a relative basis. We began to look at retail projects earlier this year, and our interest was piqued mostly by the signs of distress in the space. With the closings of several box tenants and the disruption in the sector as a result of the Internet, we see an opportunity to rebrand and reinvigorate some of these projects. The difference in property type between industrial and retail is meaningful as the retail space is much more influenced by synergies between tenants, and the wrong tenant mix can be catastrophic to a center. The industrial tenant base is more homogeneous, and tenant mix is not typically critical.
What is unique about the Inland Empire that’s drawing you to that market?
We’ve invested significantly in the IE from an industrial perspective due to the available yields being higher than the coastal markets. From a retail perspective we were attracted to the Stoneridge project by its recent construction and the improving demographics. Many of the housing projects now being constructed were originally planned for 2008-2009. Once the recession hit, these homes were shelved for many years. This resulted in a glut of retail that was built in anticipation of the planned rooftops. We feel that the dynamic has now shifted where the well-located and well-conceived retail projects can be repositioned to be successful in a growing population base.
Where do you see the Inland Empire market heading over the next several years?
I don’t have a great crystal ball in the short term. I feel that yields in industrial product across the western markets are too compressed to weather any uptick in interest rates or any economic turmoil. As a result, I feel that cap rates will begin to creep up. I feel that long term the IE is where homes must be built simply due to the availability of land, so as a driver of population I think this will continue. One thing to keep an eye on is the labor market and the effect of automation on jobs. The IE by some measures is more exposed than other areas to automation as many of its jobs are in sectors that will be negatively impacted by increased automation. The ability of the school system and employers to retrain employees will be an interesting to watch closely.
What other markets are you eyeing and why?
We own and operate projects in Southern California, Austin, Las Vegas, Northern California, Phoenix, and Hawaii. We like Denver long term but haven’t been able to break in yet. We’ll stay focused on the West Coast, as we typically are very involved on a granular level with our projects, and this is where we live and where our employees are.