Newport Beach-based developer Western Realco LLC has made its largest local acquisition in several years, buying the Fullerton industrial site that previously housed the local operations of Smurfit-Stone Container Corp.
The company paid $8.3 million for the 15-acre property, near the Riverside (91) Freeway on South Raymond Avenue. The site counts a 140,000-square-foot plant and a 40,000-square-foot office building, plus outside storage and truck space.
Real estate brokers say it’s one of North County’s prime locations for an industrial redevelopment,once the area’s ready for more construction.
Vacancy levels for OC’s industrial market, which totals more than 250 million square feet, are at their highest levels in nearly five years. Availability rates now approach 12%, according to local brokerage data.
Western Realco isn’t committing to construction yet, despite its history of building big industrial projects across Southern California.
“We’re still not sure what our plans are going to be,” said Gary Edwards, principal for Western Realco.
Western Realco is gauging preliminary interest from potential industrial users before deciding whether the property only needs some minor refurbishments to accommodate a tenant, or whether a wholesale redevelopment of the site is a better option, according to Edwards.
Since completing the sale in late July, the company’s already gotten a few looks from interested tenants, he said.
The Fullerton site was a longtime home for Smurfit-Stone, a Chicago-based manufacturer that announced its intention to close the site and move local operations to Cerritos about a year ago.
The company had made cardboard boxes in Fullerton for more than 40 years.
The property was put on the market for sale last summer, and Smurfit-Stone moved most of its roughly 100 workers from the site by early this year.
The proposed sale gained complexity as the commercial real estate market went south, along with Smurfit-Stone’s own financial issues.
In January, the struggling company filed for Chapter 11 bankruptcy in Delaware, and Western Realco had to get court approval for the deal to close.
The down real estate market had a large impact on the property’s sales price. As of September, Western Realco had bid about $17.4 million for the property, but the developer subsequently decreased its offer as the market continued to slump.
Two other potential buyers went into escrow for the property at prices less than $17 million, but they also opted to walk away when the price appeared too high, according to court documents.
The change in the property’s price to $8.3 million “is reflective of what’s been going on the past nine months,” Edwards said.
The company’s expecting to see some additional price declines for the remainder of the year, he said.
Sale prices for industrial properties are expected to decline another 20% by year’s end, according to the local brokerage offices of Santa Ana-based Grubb & Ellis Co. Aggressive pricing is the key to getting deals done in this environment, Grubb officials said.
A few years ago, the property would have been a prime candidate for conversion into smaller, for-sale industrial condominium units.
With demand for for-sale buildings slowing amid the recession and credit crunch, conversion doesn’t make as much sense for the developer, according to industry watchers.
Such a development wouldn’t be the norm for Western Realco. The company’s developed more than 100 buildings, with an emphasis on big distribution facilities in the Inland Empire.
It has built close to 15 million square feet of space in total during the past 35 years.
Recent deals the company’s made have been outside OC: in Commerce, Santa Fe Springs and the eastern Inland Empire.
With prices dropping, the company’s considering more acquisitions and will consider more buys in OC, Edwards said. Typical deals are $5 million and larger.
Its financial partner on the Fullerton deal was Hartford, Conn.-based Penwood Real Estate Investment Management.
