All posts by singlemalt

Native Angeleno and Industrial real estate agent since 1994.
Deal File

City of Vernon Purchases 11 Acre Site – To Redevelop

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The City of Vernon recently acquired the 11 acre Smurfit-Stone (formerly Container Corp) site on 57th Street, after the container manufacturer decided to close the Vernon plant and consolidate operations into other facilities.  The City expects to have a contractor demolishing the existing facilities on the site beginning later this month.  The City’s Industrial Development staff is currently in discussion with several large manufacturers about future use of the site.

The City has purchased several large land sites over the past several years in order to control the destiny who occupies the sites.  The City prefers companies that manufacture, employ more persons than warehousing operations, and that use copious amounts of the power that the City sells.  This interference by the government in the free market of real estate deals definitely rubs some people the wrong way.

Market Trends & Indicators

Lease Activity Overshadows Sales

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In the 2008 second quarter, 3.5 million square feet of building space was absorbed in the Central Los Angeles industrial market, similar to Q2 ’07.  Here is the interesting point:  space leased totaled 2,800,000 SF versus a paltry 751,000 SF sold – almost a 4:1 ratio.  The credit crunch and high sale prices have surely placed a damper on the sale market even though sale prices are relatively stable.

Market Trends & Indicators

Industrial Activity Slow But Steady

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The Southern California industrial market continues to exhibit consistent demand for tenant space and strong occupancy levels.   The five-county area, which consists of approximately 1.7 billion square feet of industrial space, maintained a low vacancy rate averaging approximately 3%.

The economic climate is posing many challenges to the Los Angeles county as well as the Industrial Market;p however, the fundamentals remain in place for strong performance in the marketplace.
Capitalization Rates for industrial investment properties hovered just below six percent.  Vacancy remains low in the 3-5% range, but several points higher in the Inland Empire.  Many brokers have seen a 20-30% decline in transaction volume and demand.

More specifically, Gross Absorption is 50% compared to a year ago, with 2008 Q1 at 2.2 million versus 2007 Q1 at 4.1 million for the Central Los Angeles area.  The Central Los Angeles Market is the largest industrial base in Los Angeles County.  The Central Market remains one of the tightest and strongest submarkets in the region with little if any new construction due to the high cost and low availability of land.

To some degree, reduced container traffic has contributed to the diminished demand.  Containers handled at the ports of Los Angeles and Long Beach were down 5.6% and imports sunk 5.9%, while exports increased 22%.  Lease rates have held steady though.  Although, tenants are demanding more concessions in the form of free rent and tenant improvements.

Market Trends & Indicators

CMBS Market in the Dumps!

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Investors have showed minimal appetite for commercial mortgage backed securities (CMBS) in recent times with only $10 billion in US CMBS issues in Jan-Apr 2008. Volume is a fraction of the $79 billion in bonds that sold during the first four months of 2007 according to Commercial Mortgage Alert.  The general consensus at the Commercial Mortgage Securities Association meeting in New York last week was that an estimated $50 billion of CMBS will be issued in 2009 versus $224 billion in 2007. This volume would put production in line with 2002 levels of $52 billion.

Experts say a likely upswing won’t occur until early 2009 at best at which point CMBS bond prices should be stable enough for investors to jump back in.  However, CMBS fundamentals are quite healthy and the delinquency rate is only 0.35%!

As a result of the credit crunch, total commercial real estate transaction volume is off 74% YTD as of April 2008 compared to 2007 levels. Until capital is more readily available transaction volume will likely remain slow.

Food Industry

New Meat Processing Facility at Cal Poly

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The J and G Lau Family Meat Processing Center is a state-of-the-art facility located on the Cal Poly campus in the heart of one of the most beautiful cities in California – San Luis Obispo. From harvesting to packaging, this over 13,500 sq. foot center will enable all stages of meat processing in the safest possible environment. Beyond the ordinary classroom, students will experience their education in this state-of-the-art Meat Processing Center that is as technologically advanced as the professional world they will enter. Intended as a space where the lines are blurred between industry and education, the Meat Processing Center will allow companies to utilize test kitchens for product development alongside Cal Poly students and faculty. With this kind of vision, Cal Poly graduates will enter their professions as leaders, innovators and experienced problem solvers.

With the meat industry constantly emerging, such an advanced facility is vital to preparing our future leaders. This is your opportunity to contribute to one of the finest meat processing centers and help guarantee a place where past principles and modern ideas will join forces to improve education and raise the bar of meat industry standards.