A slowly improving economy hasn’t led to a surge in new development of industrial buildings in Orange County. Neither has a vacancy rate approaching 5% or less in several key local markets for manufacturers and warehouse users, particularly in North County.
But what about a recently built industrial building in Brea getting an eye-catching sale price and a significant return on investment for the property’s developer this month?
Crystal Ball Deal?
The sale of the building, new and of a higher quality than many existing industrial buildings of its size on the market, could help kick-start some additional construction, according to industry watchers, overcoming developers’ nervousness about stagnant lease rates.
“This is an important deal,” said Kurt Strasmann, senior managing director for the OC operations of CBRE Group Inc.
“The market has been waiting to get some data points.”
The deal was for 2850 Orbiter St., a nearly 84,000-square-foot building just off Imperial Highway in Brea, the largest speculative industrial building to be developed in Orange County in the past five years.
It traded hands for a little less than $11.2 million, or about $134 per square foot, in an all-cash deal.
Area industrial properties in the 100,000-square-foot range have generally been selling for closer to $100 per square foot, according to brokerage data.
“It’s a big jump over prices in the past,” Strasmann said.
Gary Edwards, principal of privately held developer Western Realco, said he was “very pleased” with the price of the sale, as well as the overall activity and user interest shown for the building.
“It reinforced that the user market is still exceedingly tight,” said Edwards, whose company paid a little less than $3.5 million for the Brea land in 2011. Construction began a year ago and finished this past April.
Newport Beach-based developer Western Realco and its financial partner, AEW Capital Management of Boston, built the industrial property over the past year without a specific tenant in place.
The building now has an occupant in Coyle Reproductions Inc., a maker of signs, banners, displays and other printing services that plans to move its headquarters from La Mirada to Brea after buying the property.
LA Transaction
The property’s sale mirrors a similar transaction just over the Los Angeles line in Long Beach, where Irvine-based Sares-Regis Group recently completed a similarly-sized square foot industrial sale to another user. Brokers wouldn’t disclose the property’s exact size.
The Long Beach property traded hands for about $140 per square foot, according to brokers who declined to disclose the buyer’s name.
Sares-Regis and Western Realco in both cases “got the comps people were looking for,” said CBRE’s Strasmann, whose brokerage office worked on both sales.
He said the pricing of the sales should encourage developers to move ahead on other local industrial projects.
A few million square feet worth of industrial projects have been planned across OC, but less than half a million square feet of new product has been completed over the past five years.
Projects In Works
Other large projects expected to move ahead in earnest over the next year include Newport Beach-based Panattoni Development Co.’s 80-acre Anaheim Concourse development, which will hold close to 1.6 million square feet of space upon build-out.
Sares-Regis also has industrial plans in the works for 25 acres of land it bought this year in Orange, and Aliso Viejo-based Shea Properties plans a 144,460-square-foot industrial center in Huntington Beach.
Western Realco, which has been involved in nearly $100 million worth of sales and purchases of industrial properties over the past four years, also has its share of projects in the planning stages or under way.
In Anaheim, the company has a nearly 200,000-square-foot speculative industrial building moving ahead just off State College Boulevard and a few blocks from the Orange (57) Freeway at 2201 E. Cerritos Ave.
The shell of the Anaheim building, being built on land previously owned by Pittsburgh-based Neville Chemical Co., is now up, and construction is expected to finish by year-end.
Pricing for the building, which is being marketed by the Newport Beach office of Newmark Grubb Knight Frank, hasn’t been disclosed. Edwards said the company would be happy to see a sale similar on a per-square-foot basis to the Orbiter Street deal.
Leasing Angst
Leasing the Anaheim property also is an option, but that poses a few more challenges.
“Lease rates are not where we anticipated they would be a year ago,” Edwards said.
“That’s a little discouraging” and indicative of an overall economy that hasn’t completely recovered from the last recession, he said. “That’s our biggest concern.”
Industrial buildings in OC average monthly lease rates of about 60 cents per square foot, up about 5% from a year ago, according to brokerage data.
Many in the industry had expected higher rents, given a countywide occupancy rate of nearly 95% for OC’s nearly 250-million-square-foot industrial buildings base.
Lease rates could prompt developers to hold off breaking ground on some projects, but properties sold to owner-users or other investors still offer the opportunity for good returns, Edwards said.
New Versus Old
“Users are willing to pay a premium for new product. We’re seeing a bifurcation between new versus second-generation buildings,” said Edwards, whose company does ground-up development and rehabs of older buildings.
More buildings targeting owner-users look to be in the cards for Brea. Western Realco has a 20-acre site under contract next to the just-sold Orbiter Street property.
The site, just east of Saturn Street, holds an older, 50,000-square-foot building that would make way for a multibuilding industrial project of up to 350,000 square feet.
Construction could begin next year if the land sale goes through.
