In the WSJ article, The U.S. Is Running Out of Land, a professor of finance who studies land values cites that “Land now accounts for 47% of U.S. home values…That is up from 38% in 2012 and less than 20% in the early 1960s.”
So that intrigued me and I pulled a sample of 1,315 industrial zoned parcels from Downtown Los Angeles to the City of Vernon. See below graphic. Dividing the Los Angeles County Assessor Land Value amount by the Total Assessment results in 71% of these industrial properties’ value is the land component. The Total Assessment includes improvements such as warehouse and manufacturing buildings constructed on the land.
That is a strikingly high percentage for land value but should not be surprising given the rapid increase in prices per square foot for land sales in the last decade. In the top section of the graphic, which is the DTLA Arts District, land values have ranged from $300-450/SF in recent years. In the bottom section, City of Vernon land was not long ago $50-100/SF and is now approaching $200/SF.
The Central Los Angeles Industrial Market has been an Infill Market for many years which has resulted in rapid increases in land values. If you own land in this area feel free to contact us.
If you want to have a thorough understanding of the causes for the current economic inflation, then this is the best article I’ve read on the subject recently. Christopher Thornberg of Beacon Economics has an excellent grasp of the details. Surprisingly the cause is not primarily supply chain kinks, but rather consumer demand. And Christopher details what has been driving demand and how the Federal Reserve has blundered in managing the money supply in countering inflation.
Average Asking Lease Rates have climbed dramatically in the last several years with the largest increases in 2021 and 2022. See below chart showing the steep rise for warehouse asking rental rates in Los Angeles, Orange, Ventura and the Inland Empire per AIRCRE MLS data. These are the major industrial property markets in Southern California. Individual markets and submarkets vary along with building class quality.
The Central Los Angeles industrial submarket had a very low vacancy rate of 1.4% in the first quarter of 2022. Warehouse buildings for sale or lease are hard to find for buyers and tenants as the number of listings is thin. Thus, rents and asking sale prices continue to rise. Year over year, rents rose 20% which is shocking.
There is a big change on the horizon that will significantly impact commercial real estate transactions, especially for industrial manufacturing properties with suspected contamination in the building or soil. ASTM E1527-13, entitled Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, is the nationally recognized standard for evaluating environmental risk at a commercial property during acquisition or financing.
First released in 1993, the standard has been revised in 1994, 1997, 2000, 2005, and most recently in 2013. The ASTM standards expire every eight years, and ASTM E1527-13 is scheduled to sunset on December 31, 2021. Therefore, the new standard, ASTM E1527-21, must be finalized and published sometime in 2021.
The ASTM subcommittee in charge of this process is considering updating certain key components to the standard. These changes are sure to have an impact on future commercial real estate transactions. While numerous changes are being proposed, most are relatively minor, aimed at reinforcing the current standard. A few, however, will have a significant impact on the standard.
If you have been involved in the procurement, preparation, review, or use of a Phase I ESA Report, you know the biggest concern many environmental professionals, buyers/sellers of commercial property, and lending institutions struggle with is “Are there one or more Recognized Environmental Conditions [RECs] at the subject property?”. Just what defines a REC has progressed through revisions to ASTM E1527 in an effort to clarify this most critical concern. The forthcoming ASTM E1527-21 standard will likely update the definition of a REC.
To heighten awareness, E1527-21 proposes to include Per- and polyfluoroalkyl substances [PFAS] and other emerging contaminants in Non-Scope Considerations that some environmental professionals and end-users may want to evaluate as part of a Phase I ESA report.
How long is a report good for? EPAs All Appropriate Inquiries [AAI] Rule mandates specific components to be conducted within 180 days of the date of the property purchase or intended transaction. These components are 1) interviews with owners, operators, and occupants; 2) environmental cleanup lien research; 3) visual inspection of the property and adjoining properties; 4) review of government records; and 5) declaration by an environmental professional. After one year, the entire Phase I ESA report must be updated to meet the AAI Rule.
The above text was excerpted from Omni Environmental Group.
If you own and wish to sell a suspected environmental impacted property in Southern California then please contact us so we can present it to a buyer that specifically seeks this type of commercial real estate acquisition opportunity.