The L.A. County industrial neighborhood of City Terrace has seen increased buyer and investor activity in the past few years. Not only have several properties sold in this up and coming area, but a new 200,000 square foot industrial building is under construction by a well known developer.
The heightened interest in this once sleepy area may be due to it’s proximity to the Arts District, Boyle Heights, and Lincoln Heights, and also between Cal State University L.A. and the USC Keck School of Medicine. Nearby a Biotech/Bioscience campus is being built with heavy interest from prospective tenants. These are exciting developments for one of the oldest industrial tracks in L.A.
A new opportunity is a 106,141 square foot land parcel with 40,000 square feet of old manufacturing buildings on it. This site is being offered for sale at land value. Allowed uses in this M2 zone are manufacturing, distribution, trucking, cannabis, and a variety of other industrial and commercial uses. One advantage of operating a business in unincorporated county lands is that there is no gross receipts revenue tax as there exists in the City of Los Angeles.
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The City of Los Angeles is in the process of updating its land use plans. These plans are the way the City plans for the future. The Draft Boyle Heights Community Plan Update is the blueprint for guiding this change. For a PDF of the plan see Boyle Heights Zoning Plan Update. Note the industrial section known as The Flats, on the left side of the image, is being rezoned from Industrial to an Innovative zone. This may be a riff from the CASP multi-zoned ordinance passed for the area north of DTLA near LA State Park, the cornfield.
The secondary market for commercial real estate is just beginning to show new life, with the first successful sale of a commercial mortgage-backed securities (CMBS) package in over a year and several new issues in the wings spurred by the strong investor interest on that initial offering. But the positives of renewed activity are tempered by more bad news on the performance of those commercial bond deals made before the freeze.
According to a new report from commercial research provider Trepp, delinquent loans in commercial mortgage securities jumped 85 basis points to 5.65 percent at the end of November. That figure is up from just 4.8 percent a month earlier.
The delinquency rate was highest in the hotel sector, where defaults skyrocketed from 8.67 percent in October to 14.09 percent in November. According to Trepp, the upsurge came from a single Extended Stay Hotel loan. Without it in the mix, the hotel delinquency rate would have increased only 64 basis points, to a little over 9 percent.
Based on Trepp’s analysis, delinquencies on multifamily CMBS loans rose to 8.78 percent in November, up from 7.66 percent the previous month. All other sector’s showed slighter increases. Retail edged up from 4.53 percent to 4.78 percent. Industrial increased from 3.18 percent to 3.33 percent. Office loan delinquencies crept up from 3.08 percent to 3.14 percent.
Trepp says there were $65.2 billion in CMBS loans in special servicing at the end of November, an increase of $8.2 billion, or 14 percent, compared to October. There are very few CMBS related distressed properties in the Los Angeles area. from dsnews.com. image from wsj
Of $25.7 billion in distressed assets, the Western U.S. takes $10 billion. However, the good news is that of all commercial property types in the U.S., Industrial has the lowest distressed amount of $700 million out of $25.7 billion, compared the higher amounts of Office, Retail, Apartment (multi-family), Hotel, and Development. Industrial includes warehouse and manufacturing buildings. According to Real Capital Analytics Troubled Asset Radar.
Some of the owners of the distressed or potentially distressed properties are taking preventative measures and seeking bridge loans prior to their primary loans expire. Many bridge loan terms max out at 18 months and have interest rates from 10-18%.
The Central Los Angeles industrial real estate market encompasses approximately 300 million square feet of building area. This market includes the well-known submarkets: City of Vernon, City of Commerce, and Downtown Los Angeles. It should be noted that the following areas on the periphery to Downtown are also included in the Central LA market: Lincoln Heights, Glassell Park, City Terrace, East L.A., Boyle Heights, South Industrial, and the Goodyear Tract. In the Central LA submarket buyer and tenant demand remains strong compared to outlying markets. In fact, the Central submarket remains the tightest metropolitan industrial market in the nation. This submarket is an infill market and very little new construction occurs on empty industrial land (with almost no construction on other types of commercial real estate such as retail and office). The Central LA market is also the largest industrial real estate submarket in Los Angeles County.