The sale of a fully leased new industrial building in Anaheim has apparently set a new high-water price point for large Orange County warehouse and distribution properties.
Los Angeles-based institutional fund manager American Realty Advisors closed this month on the purchase of 1730 S. Anaheim Way, a 143,930-square-foot building that opened about a month ago.
The property, which sits alongside the Santa Ana (5) Freeway, is fully leased to San Jose-based electrical contracting firm Rosendin Electric Inc. for its new Southern California headquarters.
American Realty paid about $33.1 million, according to property records. At $230 per square foot, that’s the highest square footage price on record for an area industrial property of 125,000 square feet or more, according to data from real estate market tracker CoStar Group Inc.
The last large area industrial project to sell were seven leased buildings totaling nearly a million square feet at the Anaheim Concourse. Built on the city’s former Boeing campus, they sold in October 2016 for $188 million, a then-record $195 per square foot.
Year-over-year industrial building sale prices were up about 9% as of March 31, according to area brokerage data.
‘Checks All Boxes’
OC’s hot industrial market, coupled with the location of the new Anaheim building, and the tenant, justified the price, according to the buyers.
“North Orange County closed out the end of 2017 with an industrial vacancy of 1% with very little new industrial development in the pipeline,” said ARA Executive Vice President of Portfolio Management David Hubbs.
“These extremely high barriers to entry are a result of limited land availability, rising land costs and entitlement barriers, which strategically position the asset for long-term stability and growth, and will allow us to deliver strong risk-adjusted returns to investors over time,” he said in a statement.
“We are strategically targeting core properties that have long-term leases in-place with extremely high-quality tenants and fixed annual rental increases,” said Scott Anderson, director of ARA’s investment group.
“This asset checks all of the boxes,” he said. “It is leased to an electrical contracting company through 2028 with built-in annual escalations, is located in an exceptionally strong and supply-constrained market, and features quality new construction with top-of-the-line amenities.”
Local Developers
ARA bought the property from the developers, a partnership between Batcheller Equities and Panattoni Development Co., both in Newport Beach.
Newmark Knight Frank’s Bret Hardy, Jeff Read, Scott Read and Greg Osborne represented the seller, and ARA represented itself.
The property’s development took a number of turns over the past two years, culminating with the sale, said Steve Batcheller, chief executive of Batcheller Equities and former head of local operations at Panattoni. The project was the first local venture between the developers; Batcheller started his firm around the start of 2016.
The site was previously owned by the city of Anaheim. It’s on seven acres just off the freeway on a one-way street connecting Katella Avenue and the Platinum Triangle to Anaheim Boulevard and the Anaheim resort area.
When the developers were initially in escrow to buy it from the city, and planning a speculative industrial development, “Disney came along” with the idea of turning it into a parking lot for its resorts, which are a little more than a mile away, Batcheller said.
Disney ultimately changed course, and a spec industrial project was again planned. But around the time the development team bought the site in early 2017 for a reported $10.2 million, Rosendin emerged.
“It turned out to be a quasi build-to-suit project,” Batcheller said. About 40,000 square feet of creative-office space was added for the tenant, along with a hybrid solar roof system with skylights and solar panels, among other design tweaks.
Rosendin is paying a little more than $1.2 million in rent per year, with 3% annual increases, according to Newmark’s marketing materials. The tenant put about $4 million into the property before taking occupancy.
“It turned out to be a highly successful project for the two developers,” Newmark’s Jeff Read said.
Batcheller, who while at Panattoni spearheaded the Anaheim Concourse development, said his firm has a few other opportunities in the works, including one in OC, and plans to start one to three projects a year.
Finding local deals remains a challenge. He said, “There’s a lot of competition” to find space in OC, where developable land for industrial projects is scarce.
Only 14 larger big-box properties the size of the Rosendin one or larger have been built here since 2010, according to Newmark’s marketing package.
The next big project scheduled to open is Western Realco’s seven-building Beckman Business Center in Fullerton, which will total about 935,000 square feet and whose first buildings should be done this summer.
