Deals—both large and small—are starting to make their way back to Orange County’s industrial market after a largely barren 2009.
Industrial sales and leasing activity in the first quarter totaled about 3.3 million square feet, according to the Irvine office of Colliers International.
That’s up 27% from the 2.6 million square feet reported in the fourth quarter and stands as the highest amount of quarterly industrial activity the area’s seen since the third quarter of 2007, the brokerage reports.
That amount of activity wasn’t enough to keep OC’s industrial market from seeing about half a million square feet of negative absorption, but it was an improvement from a year earlier, when there was nearly 850,000 square feet of negative absorption in the same quarter.
OC’s industrial market now counts a vacancy rate of about 6.3%, up from 6% at the start of the year. Availability now stand at 11.4%, according to Colliers’ data.
Deals in the past few months have included some blockbusters. OC recently saw its largest industrial lease signed here in five years, a 626,000-square-foot Buena Park deal signed by Lakeland, Fla.-based logistics company Saddle Creek Corp.
That lease, announced in January, came a few months after Saddle Creek bought one of the area’s largest users of industrial space, Buena Park-based ServiceCraft Logistics.
Along with big leases, there’s also been an uptick in sales valued at more than $10 million—a welcome sign to a market that had largely been void of such big-dollar sales for the better part of 18 months.
There were only five industrial sales of more than $10 million in 2009, according to data from CoStar Group Inc. So far this year, there have been three such sales reported, with a fourth expected soon.
“What we’re seeing is that things have hit bottom,” said Clyde Stauff, executive vice president for Colliers. “We’re finding that better buildings in better areas will sell.”
Part of the uptick in deal making is due to necessity—prospective tenants and owners opted to wait out making deals during the dark days of the recession and now have to sign on for space, according to brokers.
“We’re seeing the activity picking up significantly as buyers and tenants who sat on the sidelines for much of 2009 are now in a position where they must make decisions,” said Ben Seybold, senior vice president for the Anaheim office of CB Richard Ellis Group Inc. “People have put their plans on hold (for a few years) and can’t hold off anymore.”
Seybold and partner Sean Ward have been among the area’s busiest industrial brokers. They recently completed six lease transactions in North County totaling about 443,000 square feet of industrial space.
Those deals—four in Anaheim and two in Fullerton—have a total value of more than $14 million.
The largest of those six transactions was a 104,000-square-foot lease renewal at 2891 Miraloma Ave. in Anaheim. Shrink packaging manufacturer R.B. Dwyer Co. renewed its full-building lease with the landlord, MS Industrial, in a seven-year deal.
As part of that transaction, Dwyer subleased 28,697 square feet of the building to Wheaton Van Lines Inc., a professional moving company, for five years.
Seybold also represented Yardley, Pa.-based investor BPG Properties Ltd. in April’s $11.2 million sale of a building at the Crossroads Anaheim industrial site, the second-most expensive sale seen in OC so far this year.
That building—a recently renovated 154,225-square-foot warehouse at 1600 N. Kraemer Blvd.—was bought by Advantage Mailing Inc., an Orange-based provider of print and direct mail that’ll be moving its headquarters to the new property.
User-owners remain the most active buyers and are traditionally the first group of investors to re-enter the market after a down period, said Collier’s Stauff, who recently worked on one such deal, the $4 million sale of a Garden Grove facility on Chapman Avenue.
That 50,625-square-foot warehouse was sold to Aero Dynamic Machining Inc., a manufacturer of aerospace parts. The deal was the third-largest industrial sale in OC last quarter, according to CoStar Group Inc.’s data.
The biggest sale for the first quarter, for the former Fullerton plant of Chicago-based cardboard box maker Smurfit-Stone Container Corp., also was made to a user-owner: Carson-based South Coast Transportation & Distribution Inc.
South Coast Transportation is moving its headquarters to Fullerton after buying the 15-acre property for $12.3 million. The property includes about 198,000 square feet of space.
Deals
With prices of industrial buildings off some 30% or more from the peak of the commercial real estate market, more institutional investors are slowly beginning to follow user-owners back to potential deals, Stauff said.
“There’s plenty of capital out there,” he said.
Among larger potential deals, industry watchers are keeping an eye on a 281,000-square-foot Anaheim property along La Palma that previously was used by Galleria Inc., an Anaheim-based importer of lawn, garden and other household products.
Galleria paid $20 million for the storage and distribution building in 2002, sold it to Irvine’s Sares-Regis Group a few years later in a sale-leaseback transaction and then re-acquired the building in 2007 for a reported $38 million.
Those moves were part of at least $150 million worth of property sales and acquisitions that Galleria made since 2006 in OC and the Inland Empire.
Two affiliated companies of Galleria filed for Chapter 11 bankruptcy protection in the Santa Ana division of bankruptcy court last October, which is prompting the company’s buildings in Anaheim and Rialto to be sold off in lender facilitated sales.
The vacant Anaheim building has received nearly 30 offers. The bulk of them are from investors such as pension funds and real estate investment trusts, said Jeff Chiate, executive director for the Irvine office of Cushman & Wakefield Inc., which is listing the building for a special servicer.
A deal should be reached shortly, according to Chiate.
A possible sales price on the La Palma building hasn’t been disclosed, although market watchers expect a deal to be made for about $80 per square foot or more, putting the building’s price at about $22 million.
