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Rexford Pays $40M For Fox Racing Headquarters

Irvine plans industrial ordinance

After a decade of downsizing, the city of Irvine is seeing an industrial development renaissance, bolstered by burgeoning demand for logistics and distribution facilities in the wake of the pandemic.

That revival is being threatened by a new city ordinance that’s made its way through Irvine’s planning commission, which developers worry will worsen the entitlement process for new industrial projects and hinder demand from prospective tenants.

In the latest industrial deal on the books for the city, Rexford Industrial Realty Inc. (NYSE: REXR) has spent $40 million to acquire the Fox Racing headquarters at 16752 Armstrong Ave., near The District shopping center in Tustin.

The 6.4-acre site includes an 81,600-square-foot creative office and warehouse building that Fox has occupied since it was built in 2012. The motocross and mountain bike gear and apparel retailer’s lease expires at the end of 2027, property records indicate, with two five-year extension options.

Upon the lease expiration, Rexford intends to redevelop the site into a Class-A logistics building, similar to other conversion projects it has underway in the area.

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The deal works out to about $140 per land foot, lower than the sky-high land prices seen last year when deals at one point approached $200 per land foot.

“The area has cooled in the past three months, though the deal is still a healthy figure on a land comp basis,” Newmark Executive Managing Director Paul Jones told the Business Journal. Jones, Kevin Shannon, Bret Hardy, Ken White and Brandon White in Newmark’s Newport Beach office represented the seller, Griffin Realty Trust Inc., in the deal.

Griffin paid $27.3 million for the property in 2013, about a year after Shubin Nadal Realty Investors LLC delivered the unique office campus, which touts a motorcycle track and bicycle pump track, as well as a retail and museum concept depicting Fox’s history.

Fox, which was acquired by Anoka, Minn.-based outdoor and sports products conglomerate Vista Outdoor Inc. (NYSE: VSTO) in August for $540 million, employs nearly 420 people, including an estimated 110 in Irvine.

New Rules

The property is one of several Irvine offices whose redevelopments will mark a return to type; the 6.4-acre site previously held a warehouse.

“I remember when we were tearing Irvine’s industrial buildings down to build offices,” Jones said. “Now it’s flipped.”

Rexford in 2021 paid $192 million for a trio of Central Orange County properties; the two largest buys were for office campuses, including the Santa Ana headquarters for Behr Paint and the Orange headquarters for Volt Information Sciences Inc. (NYSE: VOLT). Rexford is working on redevelopments for both sites.

Rexford, and other local developers looking to boost Irvine’s industrial inventory, may soon face a new hurdle in securing approvals due to a new city requirement that will require a conditional use permit for all logistics facilities or warehouses that are 100,000 square feet or larger.

Such a change is the result of the city’s concern over land use compatibilities, as new demand from consumers has prompted new industrial developments to sprout up in or near residential areas.

“Today’s warehouses may be located in mixed-use environments, are often times built on a speculative basis, may operate 24 hours a day, can generate light, noise, and/or emissions,” documents from a planning commission meeting held Nov. 17 read.

“As such, staff believes that updating the City’s Zoning Ordinance is appropriate.”

According to the city, the proposal aims to prevent the development of buildings that may negatively impact public health and safety—whether from traffic, emissions, or other unintended consequences—but real estate sources tell the Business Journal the ordinance will have its own negative impacts should it move forward.

The measure, proposed by the city council, passed the planning commission late last year, though the city is still working through how the ordinance will be implemented, sources note.

Development projects approved prior to the ordinance passing will be grandfathered in, while new proposals may be subject to the new requirements.

A future proposal from Rexford for the Fox site, for example, would require a conditional use permit from both Rexford to build an industrial facility, and then from the end-user. The city would be at liberty to reject either proposal under the new rules.

“The city will have full discretion over what developers can build, which adds a much more complex layer of risk for an already risky business,” JLL Managing Director Steve Wagner said. “If implemented, speculative industrial development in Irvine may come to a screeching halt.”

Local brokerages are already bracing for such a shift.

“We are starting to market new deals as multifamily redevelopment opportunities rather than industrial,” Jones said.

In Lake Forest, where Newport Beach-based industrial developer Western Realco and an affiliate of Denver-based Black Creek Group are heading the industrial redevelopment of the former Panasonic Avionics office campus, sources tell the Business Journal that city officials are working on a similar ordinance to the one in Irvine.

Plans in Flux

The Irvine proposal already has one prospective industrial development in the city in flux.

Newport Beach-based EBS Realty Partners late last year paid $24 million for the former Irvine facilities of Teva Pharmaceuticals Industries Ltd. after the 6.7-acre site hit the market for nearly $50 million. The lower price was in part due to the new city ordinance, sources tell the Business Journal, which forced EBS to rethink its original plans to redevelop the site into a new logistics facility.

The commercial real estate investor, which typically invests in and develops industrial and office projects in the Inland Empire, may now attempt to lease the buildings as-is to new users.

The industrial-zoned site along Hughes Avenue includes three existing industrial and R&D buildings totaling about 186,000 square feet, the largest being Teva’s main, 88,000- square-foot facility at 19 Hughes.

The city’s new requirement “would add a considerable amount of time to the entitlement process and would be problematic to future users,” EBS Principal Pat Remolacio told the Business Journal.

Other Irvine Business Complex sites in line for an industrial redevelopment include 17451 Von Karman Ave., a roughly 91,000-square-foot building near the intersection of Von Karman and McGaw avenues, which sold last year for $26 million to an affiliate of Manhattan Beach-based 9th St. Partners LLC.

9th St.’s website indicates the 6-acre site, now seeing heavy amounts of groundwork, will make way for a 138,079 square foot warehouse with about 100 parking spaces.

Changing Market

The changes come amidst new headwinds for the industrial sector after two years of breakneck growth bolstered by the pandemic.

Though still above pre-pandemic levels, the sector has cooled in recent months because of higher interest rates and lowered consumer confidence.

“There’s already a lot more risk in the market with the current debt cycle and capital markets where they are,” Wagner said. “An ordinance like this will likely have developers looking elsewhere.”

Industrial construction starts in the U.S. totaled 134 million square feet last quarter, down 40% from the quarterly average during the preceding 12 months, according to CoStar Group data. It was also the lowest quarterly total since the onset of the pandemic in 2020.

Irvine’s industrial vacancy rate was 1.3% during the third quarter of 2022, according to the latest data from the local office of commercial brokerage Voit Real Estate Services. That’s up from under 1% the year prior.

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