From SoCal Real Estate’s August 2018 issue
There are many challenges, but innovative and creative developers are overcoming them.
Anyone involved in Southern California industrial development knows how difficult it is to get these properties built. A scarcity of land, a quagmire of regulations, environmental concerns, and zoning changes are a few of the issues developers need to overcome, along with the geographical constraints of many of our markets.
Still, there are developers who are getting the job done here. As SoCal Real Estate previously reported, Newport Beach, California–based industrial real estate investment and development firm CapRock Partners recently acquired approximately 23 acres that will accommodate a 425,000-square-foot-industrial business park in Norco, California. Groundbreaking is scheduled for June 2018.
CapRock’s latest acquisition is part of its last-mile logistics strategy of delivering three regional properties comprising eight industrial buildings for a total of nearly 900,000 square feet. The properties include: Temescal Valley Commerce Center in Corona, which will deliver 140,000 square feet in Summer 2018 in a single building; Serrano Business Park in Jurupa Valley, which will deliver 327,000 square feet in Q1 2019 in three buildings; and Norco Business Park in Norco, which will deliver 425,000 square feet in Q2 2019 in four buildings. The complementary properties will offer different building sizes and regional transportation focuses, and will cater to tenants from San Gabriel Valley, Orange County, and the Inland Empire.
“The Norco acquisition enhances CapRock Partners’ position in Southern California, where we are leveraging our successes with smaller-sized class-A developments for risk-adjusted investor returns,” said Jon Pharris, co-founder and president at CapRock Partners, in a statement. “As we secure property acquisitions in highly desirable submarkets, our expertise and trusted relationships enable us to develop best-in-class product while taking advantage of key geographic advantages for customers.”
Patrick Daniels, CEO at CapRock Partners, added, “With investor demand far exceeding supply, the City of Norco provides tremendous civic support for developing community businesses. In concert, CapRock is pleased to add to workforce opportunities for residents that enhance the vibrant cultural, recreational and commercial resources that community members enjoy.”
Also, as SoCal Real Estate reported, Trammell Crow Company (TCC) recently completed three speculative industrial buildings totaling 2.4 million square feet in the Inland Empire. The projects include a 1-million-square-foot building in the city of Riverside’s Hunter Park area, a 750,000-square-foot building along Riverside County’s I-215 corridor, and a 600,000-square-foot building in Fontana’s Sierra Lakes area. All three buildings feature the latest class-A specifications, including up to 37-foot clear heights, up to 8-inch concrete floor slabs, cross-dock loading, 185-foot secured concrete truck courts, dedicated truck queuing aisles, trailer and auto parking, and other features required by e-commerce and logistics users, according to TCC.
“In addition to featuring world-class building specifications, each of these projects provides direct access to the region’s primary freeways and was specifically designed for the numerous e-commerce companies and logistics providers that require more efficient and modern buildings in the Inland Empire,” said Tom Bak, senior managing director with TCC’s SoCal-Newport Beach office, in a statement.
Over the past 12 years, TCC has delivered 11 million square feet of class-A industrial space to the Inland Empire that range from complex speculative projects to sophisticated built-to-suit developments, TCC reports. But while much of the industrial development currently in the pipeline in SoCal is taking place in that market, there are pockets in other markets where development is occurring.
For instance, in March, Badiee Development began construction of the Keystone Innovation Industrial Park located at 1398 Keystone Way, in Vista, California, a northern San Diego County submarket. City of Vista Mayor Judy Ritter, who attended the groundbreaking, said the park “will create a new place for forward-thinking companies with high-paying jobs to call Vista home.”
The Keystone Innovation Industrial Park comprises two buildings totaling 77,860 square feet and is slated for completion in Q1 2019. Surrounded by five acres of permanent open space, the park will feature contemporary amenities and views over Carlsbad to the Pacific Ocean.
“Keystone Innovation Industrial Park will deliver top-tier industrial space in North County San Diego, where new inventory is in great demand from manufacturing, action sports, and distribution companies, among many others,” said Ben Badiee, founder and CEO of Badiee Development, in a statement. The firm has begun preleasing for the park.
Also in March, a joint-venture partnership between Kearny Real Estate Co. and PCCP LLC broke ground on Phase 1 of its 311-acre Otay Crossings Commerce Park adjacent to a new U.S.-Mexico Point of Entry (POE) in Otay Mesa, California, a South County San Diego submarket. The industrial development, one of the largest to be developed in San Diego County in nearly two decades, will be located along the final extension of California State Route SR-11, which will connect the existing 905 and 125 freeways to the border. The future POE is being designed to alleviate the extensive wait time at the existing POE, which is located one mile west. Otay Crossings Commerce Park will offer finished lots and buildings designed to accommodate a variety of warehouse, storage, and distribution facilities.
Jeffrey Givens, SVP and member of Kearny’s San Diego office, said in a statement, “No matter what happens with NAFTA, Mexico will remain the United States’ third-largest goods trading partner with nearly $600 billion passing through our borders. Otay Crossings Commerce Park’s strategic location at the intersection of the future POE and the South County freeways that provide access to the major Western U.S. truck routes, will offer importer/exporters and 3PL companies with a multitude of finished land options for purchase or build-to-suit.”
Givens added that the firm already has a 40-acre site under contract, which is indicative of demand. Kearny plans to complete the $40 million first phase of on- and off-site infrastructure improvements and deliver finished lots by the summer of 2019 to coincide with the opening for the SR-11 extension to the border.
The start of construction of Otay Crossings Commerce Park is the culmination of more than a decade-long period of planning for the Kearny-led partnership, following the land acquisition in 2007. In addition to obtaining the necessary entitlements, Kearny reserved approximately 120 acres of dedicated right-of-way for CalTrans to complete the 1.8-mile last phase of SR-11 and the POE.
Givens tells SoCal Real Estate that land development of any kind in California is a huge endeavor. “Local and state regulations, in conjunction with all the various regulatory agencies, place extremely arduous hurdles on the land development process. In our case, for the Otay Commerce Center, our initial purchase was in 2007, and we are just now at the stage where we can start to grade the land in order to provide the pads and infrastructure that would allow us or an owner user to build a building.”
A sampling of the issues which had to be overcome included mitigating nesting areas for the burrowing owl, trading acres offsite for native grasslands, and coordinating all the municipal utility companies that have a stake in the property, Givens says.
It takes time and an extreme level of attention and diligence — and most importantly, money — in order to overcome these obstacles and complete these projects successfully. Navigating all of the geographical areas of SoCal for development is hard, but if you’re starting with land that has an underlying zoning which allows for industrial, that’s always a good place to start. “One of the reasons why industrial markets are so tight is that the amount of industrial-zoned land is dwindling and in many areas is non-existent,” Givens points out.
He adds that developers’ time horizons and expectations for delivery must be realistic given all the hoops they have to jump through. “John Bragg, the managing partner for Kearny San Diego and has been on point for our project in Otay since the beginning. Having that kind of consistency and expertise is very important.”
If there were one thing Givens would change about this process, he says it would be that costs were commensurate with what is actually taking place. “There are so many layers of conditions that have to be met and all of which have an associated cost.”
Working hard to know your markets and develop relationships with landowners, brokers, and other stakeholders is key to identifying the best current and future opportunities for development. Kearny also looks for good locations near critical distribution channels, i.e., major freeways, ports, and central packaging sites for FedEx, UPS, etc.
“Over the past few years, there’s been an additional location evaluator, which most are calling ‘the last mile,’” Givens says. “These would be locations near large residential centers where e-commerce types can distribute their products direct to the end users.”