Sares-Regis Group is becoming the master of making big statements.
The Irvine-based real estate company, which focuses on building and buying industrial properties and apartment complexes, has quickly built up one of Southern California’s largest development pipelines, with projects in the works here approaching $1 billion.
The company has found some big-time takers for a number of its largest projects, inking some of the region’s biggest industrial leases over the past year.
“We’re having a lot of fun right now,” said Geoffrey Stack, one of Sares-Regis’ three managing directors.
Last July, the company signed Mercedes-Benz USA to a nearly 1.1-million-square-foot lease at a property near Long Beach Airport. The deal, made at a former Boeing 717 aircraft manufacturing facility Sares-Regis bought in 2012, was the largest infill industrial lease in the L.A. area in more than 25 years, according to brokerage data.
The Long Beach property is being turned into a new car preparation facility and West Coast headquarters for Montvale, N.J.-based Mercedes-Benz USA.
2014 kicked off in much the same manner.
This month, Sares-Regis announced it landed Deckers Outdoor Corp., the Goleta-based maker of the UGG, Sanuk and Teva shoes brands, to lease an 800,000-square-foot distribution building it’s constructing in Moreno Valley.
The $37 million lease has an initial term of more than 10 years. It’s one of the five largest industrial leases in the Inland Empire over the past year in terms of square footage, according to brokerage data. The building is expected to be complete this fall.
Deckers has the option to expand the Moreno Valley operations by as much as 775,000 square feet.
The Moreno Valley site is one of several sizable area industrial projects Sares-Regis has in the works in Southern California, where more than 5.6 million square feet are in development.
The company remains on the lookout for land in the area, said Managing Director and Principal John Hagestad.
The eight Southern California industrial development projects the company’s working on— including a pair of sites on Batavia Street in Orange that could total about 700,000 square feet—are valued at nearly $570 million.
“We’re very bullish on the industrial market for 2014,” Hagestad said, “especially for large industrial (buildings).”
Last year was the company’s busiest in its 20-year history in terms of commercial development.
This year could see a similar level of activity, Hagestad said.
Apartment Action
The company also remains high on the local rental market. It has nearly 1,000 apartments in the development pipeline in Southern California, including projects in the Little Tokyo district of Los Angeles, Woodland Hills, and Huntington Beach, where it’s building the 487-unit Boardwalk Apartments near the Bella Terra shopping center.
Those projects have a combined value of nearly $310 million.
Another deal is also expected to be announced soon at the Park Place mixed-use complex in Irvine. Sares-Regis will begin building a 520-unit complex at the site this year, assuming a purchase of the land from Irvine-based LBA Realty moves ahead, Stack said.
“It’s still a strong market,” even if rental growth here and in Northern California begins to taper off after several years of above-average growth, he said.
The company’s optimism for apartments can be seen in its latest venture. It recently closed a $114 million fund it’s using to buy apartment properties in the Western U.S.
Its goal is to find value-add properties in markets “with resilient economies” and to improve the complexes to increase their values while still providing strong cash flow to the fund’s investors, Stack said. The company expects the fund to enable it to acquire more than $300 million in assets.
It expects to have bought five properties through the multifamily fund by month’s end and plans to raise money for a second fund this year.
Staying Private
The latest development and investment push is the most recent chapter in the history of Sares-Regis, which was formed in 1993 through the merger of Regis Group and SARES Co. The company has remained privately held over that time.
“We love the independence we have,” said Hagestad, who oversees the company’s commercial operations.
Stack oversees its multifamily operations, and the company’s third managing director, William Thormahlen, oversees the company’s operations and directs its legal, finance, tax and administrative functions.
J.P. Morgan is the company’s primary investor for industrial projects. Partners for its multifamily division include UBS, Invesco and Penn Square Real Estate Group, which co-sponsored the new multifamily investment fund.
“They have money in good times and bad,” Stack said.
That money wasn’t as accessible during the last recession, when the company focused on its balance sheet instead of new projects.
“It was painful,” Hagestad said. “But we repaid our lenders and lived up to our obligations.”
The company has spent the past few years ramping up its development pipeline, with its industrial deals geared for projects 600,000 square feet or larger.
“About two years ago, we anticipated the market would be on the upswing (for larger-sized projects),” Hagestad said.
Its most notable deal was in Long Beach, where it bought nearly 200 acres formerly used by Boeing Co. in three separate transactions. The land —called Pacific Pointe—is large enough to hold nearly 4 million square feet of new commercial development.
The purchases included the nearly 50-acre Boeing facility now leased to Mercedes-Benz, as well as land that’s being turned into a site that will have office and distribution facilities.
A number of the projects have already been leased, sold or are under contract. About 60 to 70 acres of the 200 acres are still left for sale or lease, Hagestad said
Company executives said they think it can sell the remainder of Pacific Pointe within a year or two.
“We’re optimistic, but we’re trying to make smart decisions,” Hagestad said. “We’re aggressive, but we don’t think we’re overly aggressive.”
